These dividend growers are also on Goldman Sachs’ buy list

October 9

Dividend stocks may be back in the spotlight, but investors should make sure they are buying quality companies that are growing their payouts, said Goldman Sachs. Dividend-paying equities are expected to get a lift as the Federal Reserve cuts interest rates. That’s because income investors may turn to them as their yields begin to appear relatively more attractive than Treasury yields. The central bank reduced the federal funds rate by half a percentage point in September, and has indicated another 50 basis point in cuts by the end of 2024. Goldman Sachs recently screened for stocks that offer solid dividend yield as well as dividend growth, both of which can be covered by the company’s earnings or free cash flow. All the names had to also be rated a buy at Goldman and have an estimated dividend yield of 2% or more in 2025. Other criteria included estimated compound annual growth rate (CAGR) of 5% or more in dividend-per-share, and in estimated free cash flow/earnings per share, for 2024 through 2026. In addition, the companies had to boast solid dividend coverage ratios of 1.0 or more for 2025 and 2026 based on estimates of earnings per share, if financial, real estate or utility companies, and 1.0 or more times estimated free cash flow for all other sectors. Here are some of the stocks that made Goldman’s cut. Best Buy , which currently yields 3.84%, has the highest dividend-per-share compound annual growth rate of 20% based on 2024 to 2026 estimates. It has an estimated 2025 dividend yield of 4.6%, analyst Deep Mehta said. The retailer is in the middle of an attempted turnaround after seeing sales slump the past couple of years. In August, second-quarter earnings and revenue topped analyst estimates and Best Buy raised its full-year profit guidance. Best Buy CEO Corie Barry also said on the earnings call that demand spurred by artificial intelligence applications should help boost sales. “We believe we are just at the beginning of the impact of AI on tech innovation and customer demand,” she said. Shares of Best Buy are up nearly 26% year to date. One bank stock that made the list was Citigroup , which currently sports a dividend yield of 3.58%. The bank has an estimated 19% CAGR in dividend-per-share between 2024 and 2026, Mehta said. Citi’s estimated dividend for 2025 is 4.2%, he added. Citigroup’s stock has moved 23% higher so far this year. Meanwhile, two real estate investment trusts are also on Goldman’s dividend-oriented buy list. American Homes 4 Rent owns single-family homes and currently yields 2.75%. Its estimated CAGR in dividend-per-share between 2024 and 2026 stands at 19% and its estimated dividend yield in 2025 is 2.9%. Prologis owns warehouses and other industrial properties and currently pays a 3.2% dividend yield. In 2025, its dividend is estimated to reach 3.3%. The REIT has an 8% CAGR in dividend-per-share based on 2024 to 2026 estimates. Real estate is the worst-performing sector of the S & P 500 , up just over 8% year to date. American 4 Homes is nearly 4% higher so far in 2024, while Prologis has lost 10%. In the oil patch, integrated producer Chevron is expected to nab a dividend yield of 4.9% next year. The stock, currently yielding 4.31%, has an estimated CAGR in dividends-per-share of 5% between 2024 and 2026. On Monday, Chevron’s Canadian unit agreed to sell oil and shale assets to Canadian Natural Resources for $6.5 billion. Chevron is also in the midst of an attempted merger with Hess . Last week, the Federal Trade Commission banned Hess CEO John Hess from Chevron’s board as a condition for the $53 billion merger to proceed. A dispute with Exxon over Hess’ oil assets in Guyana remains the final hurdle for the deal to close. Shares of Chevron are down fractionally for the year so far.

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