Corporate share repurchases, also known as stock buybacks, have become a political target for several Democratic presidential candidates. If buybacks ever are restricted or prohibited, Goldman Sachs sees an obvious consequence. "In a world without buybacks, companies would almost certainly increase dividend growth," they write in a recent report.

Meanwhile, another Goldman report says, "We believe long-dated S&P 500 dividends are currently underpriced and any restrictions on buybacks would only increase their attractiveness." They add, "We expect dividend growth stocks will outperform in a stable economic growth environment with modest near-term returns where an increased share of equity total returns comes from dividends."

Reality Shares, an investment strategy firm and ETF sponsor, has a particular focus on dividend-paying stocks. They recently recommended these eight, per Barron's: JPMorgan Chase & Co. (JPM) , Broadcom Inc. (AVGO), The PNC Financial Services Group Inc. (PNC), Comerica Inc. (CMA), Phillips 66 (PSX), Marathon Petroleum Corp. (MPC), AbbVie Inc. (ABBV), and SL Green Realty Group (SLG). Goldman's dividend growth basket contains five of them. Dividend yields for all eight are in the table below.

8 High Dividend Blue Chips

(Dividend Yield as of April 12, 2019)

  • AbbVie, 5.15%
  • SL Green, 3.73%
  • Marathon, 3.54%
  • Broadcom, 3.50%
  • Comerica, 3.48%
  • Phillips 66, 3.39%
  • JPMorgan Chase, 3.04%
  • PNC Financial, 3.00%

Source: Yahoo Finance

Significance for Investors

Reality Shares uses several metrics to identify stocks with the financial strength to offer safe dividends and the potential to increase them. Among them are: earnings growth during the prior 12 months, changes to dividends during past five years, the ratio of spending on buybacks compared to dividends, and free cash flow (FCF).

"Above-average dividend yields, sustainable payout ratios, and the fastest expected dividend growth through 2020" are the criteria used by Goldman Sachs in choosing the 50 stocks in their dividend growth basket. Five of the eight stocks recommended by Reality Shares also are among the 50 stocks in Goldman's basket, per the April 5, 2019 edition of their "Where to Invest Now" report: AbbVie, Broadcom, Comerica, Phillips 66, and JPMorgan Chase.

The median stock in this basket is projected to increase dividends at a compound annual growth rate (CAGR) of 10% from 2018 to 2020, versus 6% for the median S&P 500 stock. The forecasted CAGRs for the five stocks are: AbbVie, 12%; Broadcom, 30%; Comerica, 27%; Phillips 66, 12%; and JPMorgan Chase, 25%.

Per Goldman's observation that dividend growth stocks are "underpriced," the median stock in their basket has a forward P/E ratio of 12x projected next 12 month earnings, versus 18x for the median S&P 500 stock. For the five stocks, the figures are: AbbVie, 10x; Broadcom, 13x; Comerica, 10x; Phillips 66, 12x; and JPMorgan Chase, 11x.

Pharmaceutical company AbbVie yields a hefty 5.15% partly because it is down 24.7% from its 52-week high. Its blockbuster drug Humira treats rheumatoid arthritis, Crohn's disease, and psoriasis, generating sales of almost $20 billion in 2018, up 8% from 2017, per Barron's. However, AbbVie has most of its eggs in one basket, given that Humira generates about half its total sales, and an even greater proportion of its profits, Barron's adds.

Looking Ahead

"No system is foolproof, and it's hard to forecast dividend cuts," Barron's warns. Moreover, projections of dividend growth also are based on assumptions about the future performance of companies that may or may not materialize.