Goldman Sachs recently advised savvy investors that shares paying big dividends haven’t been this cheap in at least 40 years.
The valuation gap between high- and low-dividend-yield stocks is close to the widest it has been since around 1980, CNBC.com quoted the bank as saying.
"The market is pricing in 'an overly pessimistic' level of dividend payouts with the swap-market prices implying a 2.7% growth in S&P 500 dividend per share through 2023, well below Goldman’s estimate for 5% annual growth over the next five years," CNBC explained.
“Dividend growth pessimism is evident in the valuation of high dividend yield stocks,” Goldman chief U.S. equity strategist David Kostin said in a note cited by CNBC. “Other metrics, such as EV/Sales and Price/Book, also show high dividend yield stocks trade at an unusually large valuation discount relative to stocks with low dividend yields.”
He suggested Morgan Stanley (MS) and Best Buy (BBY)
Goldman joins a long list of respected economic voices urging investors to embrace dividend stocks.
To be sure, investing guru and one-time "bond king" Bill Gross is warning investors to beware of slow growth and sluggish markets. To survive such a treacherous investing environment, he recommends dividend-paying stocks over negative-yielding debt.
In his first investment outlook since retiring in March, Gross said on Tuesday that with trillions of dollars in debt offering negative yields, investors should be holding stocks that promise secure dividend payouts, the Financial Times explained.
“In the absence of substantial fiscal stimulation, the economic and asset boost from negative interest rate yields may have reached an end,” he said in a commentary on his website.
“Prepare for slow economic growth globally and an end to double-digit market price gains of months and years past. High yielding, secure-dividend stocks are what an astute investor should begin to own,” he said.
Gross said further upside in equity markets is limited, because central bankers were “becoming wise to the negative effects of rates at zero (or less) that literally rob small savers and larger financial institutions such as banks, insurance companies and pension funds of their ability to earn historically ‘guaranteed’ carry,” he wrote.
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