Goldman says dividend growth has been resilient and these stocks are the best at returning cash

Published Wed, Oct 25 20239:30 AM EDTUpdated Wed, Oct 25 202311:42 AM EDT

Dividend-paying stocks are well-positioned to outperform in 2024 due to their resilience, according to Goldman Sachs. David Kostin, the firm's chief U.S. equity strategist, advised investors to own stocks returning cash to shareholders as a "higher for longer" rate environment puts pressure on companies that make large capital expenditures. He forecasts stable dividend growth of 5% this year and 4% in 2024. "In this kind of economic environment, firms investing for growth through capex and R & D typically underperform as investors avoid companies making large capital investments with potentially low returns on those investments. … In contrast, stocks returning cash to shareholders through buybacks and dividends typically outperform in this part of the economic cycle," Kostin wrote in a recent note. Year-to-date performance reflects this idea, the analyst added. The firm's total cash return basket has gained 3% for the year, while its basket of stocks focused on capital spending and research and development is down 2% so far in 2023. With this in mind, Goldman screened for stocks that pay and grow their dividends. Take a look at some of the companies on the list, and where analysts see them headed next: Oil and gas producers Devon Energy and Chevron both made Goldman's list of top dividend-paying companies. High oil prices and capital discipline have translated into strong balance sheets across energy stocks, making the sector a standout for high dividends. Chevron has a dividend yield of 3.6% in 2023, with a dividend compound annual growth rate of 5% to 2025. The company agreed to buy Hess in a $53 billion deal Monday, the second recent proposed merger among the U.S. oil giants in recent days. Hess offers the country exposure to drilling in Guyana, a nascent oil producer in the field. Chevron shares fell nearly 4% Monday after the deal was announced, pulling the stock down about 11% year to date. Wall Street analysts remain bullish on the company. Nearly three-quarters of analysts covering shares rate it a buy or strong buy, and the consensus price target suggests 17% additional upside, according to FactSet data. CVX YTD mountain Chevron shares Devon Energy has the highest 2023 dividend yield on the list, coming in at 5.8%. Its dividend compound annual growth rate of 8% to 2025 means the company's payout to its investors will continue to grow. The Delaware Basin driller is also trading at a significant discount , CNBC has found. More than half the analysts covering Devon Energy are bullish on the stock, and the average analyst price target implies shares could rally 23.3%, per FactSet. While shares have gained slightly over oil supply concerns following the outbreak of the Israel-Hamas war, they are still down more than 22% in 2023. Blackstone is the best-performing stock of 2023 on the list. The private equity firm posted weaker-than-expected third-quarter results last Thursday, causing shares to decline nearly 8% on the news. Nonetheless, the stock has gained 27% year to date. Despite the disappointing quarterly report, analysts remain optimistic on the company's relative strength and strong investment performance, particularly in private credit and infrastructure. Blackstone has paid investors a 3% dividend yield in 2023. The firm also has the highest dividend compound annual growth rate of 29% on the list. BX YTD mountain Blackstone stock Luxury apparel giant Tapestry also made the cut. Tapestry's dividend yield came in at 4.6% in 2023, one of the higher yields among consumer discretionary stocks. Investors can expect their cash returns to grow further through 2025, with a dividend compound annual growth rate of 14%. Tapestry acquired luxury peer Capri Holdings in an $8.5 billion deal in August. Shares have fallen 32.3% since the announcement, pulling the stock 26.5% lower for the year. Shares could surge 65% from current levels, according to the consensus price target from FactSet analysts. Approximately 70% of analysts covering the stock rate it a buy or strong buy, according to FactSet. — CNBC's Michael Bloom contributed to this report.