Goldman Sachs: 21 stocks returning cash to shareholders through buybacks and dividends, setting them up to beat the market
- According to David Kostin and his team, companies are continuing to spend cash even as EPS is down.
- Balance sheet strength will be top of mind during third-quarter earnings.
- Companies with strong balance sheets will continue to reward shareholders.
The bond market is causing concern in the stock market.
The 10-year Treasury yield surpassed 5% on Monday, a level not seen since 2007. This is because the Fed is likely to keep interest rates higher for longer in order to combat inflation, which raises borrowing costs.
According to a Goldman Sachs note dated October 20, companies with high-cost debt to repay are less appealing to investors. Meanwhile, according to David Kostin’s note, investor interest will shift toward companies with strong balance sheets that can return cash to shareholders.
According to Kostin, S&P companies’ cash spending, including dealmaking and dividends, increased by 12% in the first half of the year, despite a 4% decline in earnings per share. How much of their cash reserves have been depleted will be revealed in the coming weeks as earnings calls are held and investors focus on balance-sheet strength.
So far, the pain has been felt in stock buybacks, which are down 22% year on year in the first half. This is a trend that is expected to continue as long as economic conditions remain tight. According to the investment bank, companies that must choose between investing in growth and returning cash to shareholders will choose the former. It’s an unpopular move that will turn off investors, implying that stocks in this sector will underperform.
Companies with strong balance sheets, on the other hand, will continue to reward shareholders, and Kostin expects their stocks to outperform. Kostin and his colleagues predict that buyback spending will increase by 4% next year as rate hikes come to an end. Dividend payments are expected to increase by 4% in 2024.
The 21 stocks listed below were recently added to Goldman Sachs’ Total Cash Return (GSTHCASH) basket of names. Each slide shows the stock’s price-earnings ratio over the next 12 months, as well as its buyback and dividend yield over the previous 12 months.
1. Interpublic Group of Cos
Ticker: IPG
Market Cap ($ billion): 11
NTM PE: 10
Trailing 12-month buyback: 3%
Trailing 12-month dividend: 4%
Trailing 12-month total: 8%
2. T-Mobile US
Ticker: TMUS
Market Cap ($ billion): 162
NTM PE: 15
Trailing 12-month buyback: 7%
Trailing 12-month dividend: 0%
Trailing 12-month total: 7%
3. Booking Holdings
Ticker: BKNG
Market Cap ($ billion): 99
NTM PE: 17
Trailing 12-month buyback: 14%
Trailing 12-month dividend: 0%
Trailing 12-month total: 14%
4. Ford Motor
Ticker: F
Market Cap ($ billion): 45
NTM PE: 6
Trailing 12-month buyback: 1%
Trailing 12-month dividend: 11%
Trailing 12-month total: 12%
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5. Marriott Intl
Ticker: MAR
Market Cap ($ billion): 57
NTM PE: 21
Trailing 12-month buyback: 10%
Trailing 12-month dividend: 1%
Trailing 12-month total: 11%
6. J.M. Smucker
Ticker: SJM
Market Cap ($ billion): 12
NTM PE: 11
Trailing 12-month buyback: 5%
Trailing 12-month dividend: 3%
Trailing 12-month total: 8%
7. Archer-Daniels-Midland
Ticker: ADM
Market Cap ($ billion): 40
NTM PE: 11
Trailing 12-month buyback: 5%
Trailing 12-month dividend: 2%
Trailing 12-month total: 7%
8. Valero Energy Corp.
Ticker: VLO
Market Cap ($ billion): 47
NTM PE: 8
Trailing 12-month buyback: 12%
Trailing 12-month dividend: 4%
Trailing 12-month total: 16%
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9. State Street Corp.
Ticker: STT
Market Cap ($ billion): 21
NTM PE: 9
Trailing 12-month buyback: 18%
Trailing 12-month dividend: 4%
Trailing 12-month total: 22%
10. Discover Financial
Ticker: DFS
Market Cap ($ billion): 21
NTM PE: 7
Trailing 12-month buyback: 11%
Trailing 12-month dividend: 3%
Trailing 12-month total: 13%
11. Invesco Ltd.
Ticker: IVZ
Market Cap ($ billion): 6
NTM PE: 8
Trailing 12-month buyback: 3%
Trailing 12-month dividend: 8%
Trailing 12-month total: 11%
12. Aflac Inc.
Ticker: AFL
Market Cap ($ billion): 47
NTM PE: 13
Trailing 12-month buyback: 8%
Trailing 12-month dividend: 3%
Trailing 12-month total: 10%
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13. Centene Corp.
Ticker: CNC
Market Cap ($ billion): 39
NTM PE: 11
Trailing 12-month buyback: 7%
Trailing 12-month dividend: 0%
Trailing 12-month total: 7%
14. Verisk Analytics
Ticker: VRSK
Market Cap ($ billion): 34
NTM PE: 36
Trailing 12-month buyback: 12%
Trailing 12-month dividend: 1%
Trailing 12-month total: 13%
15. Juniper Networks
Ticker: JNPR
Market Cap ($ billion): 8
NTM PE: 11
Trailing 12-month buyback: 4%
Trailing 12-month dividend: 3%
Trailing 12-month total: 7%
16. Akamai Technologies
Ticker: AKAM
Market Cap ($ billion): 16
NTM PE: 17
Trailing 12-month buyback: 6%
Trailing 12-month dividend: 0%
Trailing 12-month total: 6%
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17. Cisco Systems Inc.
Ticker: CSCO
Market Cap ($ billion): 217
NTM PE: 13
Trailing 12-month buyback: 3%
Trailing 12-month dividend: 3%
Trailing 12-month total: 6%
18. NXP Semiconductors
Ticker: NXPI
Market Cap ($ billion): 48
NTM PE: 13
Trailing 12-month buyback: 3%
Trailing 12-month dividend: 2%
Trailing 12-month total: 5%
19. Microchip Technology
Ticker: MCHP
Market Cap ($ billion): 42
NTM PE: 13
Trailing 12-month buyback: 3%
Trailing 12-month dividend: 2%
Trailing 12-month total: 5%
20. Public Storage
Ticker: PSA
Market Cap ($ billion): 45
NTM PE: 23
Trailing 12-month buyback: 0%
Trailing 12-month dividend: 8%
Trailing 12-month total: 8%
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21. NiSource Inc.
Ticker: NI
Market Cap ($ billion): 11
NTM PE: 15
Trailing 12-month buyback: 3%
Trailing 12-month dividend: 4%
Trailing 12-month total: 7%
