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GOLDMAN’S FAVORITE HIGH YIELD GROWTH PLAYS

16 March 2010 by TPC 4 Comments

Finding yield in a zero interest rate world isn’t easy.  Finding growth and income can be even more difficult.  In their 2010 outlook Goldman Sachs said the bull market was likely to continue and that high growth dividend stocks would play an important role in their portfolios.  Goldman recently updated their high dividend growth model using the following criteria:

“We recommend buying a group of names with above-average yields that have shown an ability to grow dividends, and that possess a balance sheet that allows for sustainable payouts. Following a period of economic and financial duress we argue for added focus and value on companies that grew their dividend in 2009 and have plans to do the same in 2010. We screened our coverage with the following criteria to drive our core list of names that benefit from yield plus dividend growth”:

1) High dividend yield. We first screen our coverage universe for companies yielding greater than 2.5% on analyst projections for 2010 dividends.
2) Consistent payout. We remove companies that cut dividends in 2009.
3) Prospective dividend growth. We then further screen for names our analysts expect will grow their dividends in 2010.
4) FCF yield. Cash flow is necessary to maintain sustainable dividend growth; we exclude companies with FCF yields below 5%.
5) Balance sheet strength. Weak balance sheets limit both the capacity and propensity to pay and raise dividends; we remove companies with net debt/equity greater than 100%.
6) Buy rating.

Based on this criteria they came up with the following 10 names:

  • AT&T (T)
  • Verizon (VZ)
  • McDonalds (MCD)
  • Abbott Labs (ABT)
  • Home Depot (HD)
  • Molex (MOLX)
  • Time Warner (TWX)
  • Analog Devices (ADI)
  • Illinois Toolworks (ITW)
  • 3M Corp. (MMM)

Source: GS

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Comments
  • boatman

    like to buy some of goldman’s picks at DOW 6000 maybe

    TPC have you seen Nenner’s latest-

    http://www.zerohedge.com/article/technical-analyst-charles-nenner-predicts-market-may-crash-april#comment-267021

    your comments on Nenner?

  • Horace D Steadman Jr

    If you are seriousley thinking that OBAMA will do something about alternative
    energy you must consider natural gas. There are several MLP’s available with
    outstanding yields! These have exciting tax advantages too! If you had rather
    stick to stocks then the UTEs are interesting at this juncture Spectra Energy
    LP as well as its parent, Duke Energy have a pretty good yield with growth
    potential,

    I totally agree with Verison and AT & T; I think these two companies are going
    to be the giants in wireless communication industry which seems to me to being
    passed over by the investment community in light of their growth and potential
    for more growth.

    One may also find some rather interesting yields inCanadian Royalty Trusts.
    Many of them have already stated that they have no plans to cut their pay-outs even if they are required to switch over to becomming corporate intities.

  • Edna Rider

    TPC, change V to VZ (Verizon). V = Visa.