If you're just looking for a simple bundle of blue-chip stocks to buy, the Dow Jones Industrial Average (^DJI +1.79%) is a great place to start (and finish) your search; the SPDR Dow Jones Industrial Average ETF Trust (DIA +1.81%) will do the trick nicely.
If your investment needs are a bit more specific, though, individual stocks typically fit the bill.
Investors on the hunt for current and future dividend income in addition to growth may want to consider Dow component Goldman Sachs (GS +2.87%). It's not much to look at on the surface. Check under the proverbial hood, however. This stock's revving a bigger dividend engine than many investors realize.
A rocky road has taken its toll
There was a time when Goldman Sachs was Wall Street royalty. But, that's not quite the case any longer. Its crown has lost some of its luster at the same time rival investment banks stepped up their games. The company was also heavily implicated in 2008's subprime mortgage meltdown, which still tarnishes its reputation. Its entry into new business lines in the meantime hasn't helped matters much.
The thing is, you own stocks for where the underlying companies are going -- not for where they've been. And where Goldman is going looks pretty compelling to income-minded investors.
Admittedly, not everyone wholeheartedly agrees. Although the stock's dividend yield of 2.9% is respectable, it's not exactly riveting. This is also the same Goldman Sachs on pace to report a 29% year-over-year dip in per-share earnings thanks to an 11% decline in revenue. The withering of the world's fundraising and underwriting business since then has clearly taken the wind out of one of Goldman Sachs' biggest sails, pinching off cash flow that helps fund dividend payments. Its other, related institutional businesses are running into headwinds too. And it hasn't gone unnoticed by the market. While well up from October's low, Goldman shares continue to trade nearly 10% below their 2021 high.
NYSE: GS
Key Data Points
However, this is a case where income-minded investors would be wise to take a step back and look at the bigger picture. The future here is far more promising than the recent past suggests.
An overhauled Goldman Sachs is ready for what awaits
To be clear, "the recent past" isn't just last year. Although 2023 is an anomaly, it's no more anomalous than the past few years have been. True long-term economic normalcy is within sight for the core of Goldman Sachs' businesses, and, perhaps more importantly, the regrouped organization is finally ready to put its past fully in the past.
As to the latter, give a great deal of the credit to CEO David Solomon. Although his tenure as Goldman's top executive, which began back in 2018, prompted heated debate, there's a light at the end of the tunnel. He's implemented three major structural overhauls, the latest of which from 2022 folds the company's struggling consumer banking business into Goldman's wealth management arm. Solomon may finally have the company as streamlined as it needs to be, with dozens of now-former partners now also out of the way.
But perhaps the bigger impasse has been the environment itself.
While a lethargic economy and steep inflation are a headache for everyone, these factors have firmed up at a time that's particularly problematic for investment banks. Almost any company that needed funds raised those funds during the pandemic. Moreover, with interest rates now at multi-year highs, companies are in no particular hurry to take on more debt. That's why EY (formerly Ernst & Young) estimates this year's worldwide total number of IPOs is going to fall 8%, while total funds raised via capital markets is set to slide 33% below 2022's already-suppressed levels.
The coming year will likely by quite different, however. With a so-called "soft landing" looking more and more likely for the global economy, dealmaking and fundraising should pick up, if only because so many companies are running low on cash. Analytics firms ranging from BCG to PitchBook to Deloitte to PwC are saying as much.
Analysts believe Goldman's top line will grow to the tune of 10% in 2024, pushing per-share profits up to $31.63. That's still not back to 2021's stunning profitability levels. With the exception of that one year, though, that will be the biggest profit Goldman Sachs has turned in for a long, long time.
Anyway, about the dividend
Great, but the yield is merely so-so at this time. Where's the gushing cash for shareholders?
Don't worry. It's coming.
Investors will want to keep in mind this company has a solid history of dividend growth even in difficult circumstances. The current quarterly payment of $2.75 per share is more than twice its pre-pandemic payout of $1.25, and more than three times the per-share dividend of $0.80 being dished out as of 2018.
Better still, it can afford to make these payments even under the most challenging of scenarios. Goldman Sachs is on pace to earn more than twice what it's dishing out every quarter to shareholders in 2023, and this year is an off year! Assuming analysts' expectations for 2024 (and beyond) are on target, these dividend payments will only require about one-third of the investment bank's earnings. The rest can be put back into the business itself.
GS Normalized Diluted EPS (Quarterly) data by YCharts
Bottom line? The past several years have been unusually tough for Goldman Sachs -- as well as its shareholders -- for several reasons. Most of those reasons are now rather far back in the rearview mirror, though. The company looks like it's finally getting back to its roots, one of which is being a healthy dividend payer with the added potential for above-average growth.
