Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Prepare for dividend stocks to bounce, Goldman Sachs options strategists say

Published 05/24/2023, 09:23 AM
Updated 05/24/2023, 09:23 AM
Prepare for dividend stocks to bounce, Goldman Sachs options strategist says

Prepare for dividend stocks to bounce, Goldman Sachs options strategist says

High dividend-paying stocks are down 7% this year versus gains of 9% and 26% for the S&P 500 and Nasdaq, respectively. Now, it is time for investors to prepare for them to rebound, according to Goldman Sachs options strategists.

The firm's models show that ETF iShares Select Dividend ETF (NASDAQ:DVY) has significantly underperformed its normal relationship with macro assets by -33% since 2018 and by -16% since the start of the year despite only slight ETF outflows. While the ETF has high exposure to underperforming sectors utilities and financials, this does not fully explain the weakness, according to the strategists.

"From an options market perspective, option prices are below median levels and skew is in bearish territory relative to the past year for the average DVY stock," they commented. "While taking no view on the direction of the market, we see potential for catch-up trades in DVY stocks where free cash flow yield is above dividend yield and see value in buying calls on these names."

The firm highlighted 10 high-dividend call-buying ideas that have underperformed year-to-date where the dividend yield is less than the free cash flow yield:

  1. Verizon (NYSE:VZ) | LTM Dividend Yield 7.3% | NTM FCF Yield 11%
  2. AT&T (NYSE:T) | LTM Dividend Yield 6.8% | NTM FCF Yield 14.4%
  3. Philip Morris Intl (NYSE:PM) | LTM Dividend Yield 5.5% | NTM FCF Yield 6.5%
  4. IBM (NYSE:IBM) | LTM Dividend Yield 5.2% | NTM FCF Yield 8.9%
  5. Pfizer (NYSE:PFE) | LTM Dividend Yield 4.2% | NTM FCF Yield 7%
  6. Gilead (NASDAQ:GILD) | LTM Dividend Yield 3.8% | NTM FCF Yield 9.1%
  7. Chevron (NYSE:CVX) | LTM Dividend Yield 4% | NTM FCF Yield 8.8%
  8. Valero Energy (NYSE:VLO) | LTM Dividend Yield 3.6% | NTM FCF Yield 23.3%
  9. Coca-Cola (NYSE:KO) | LTM Dividend Yield 3% | NTM FCF Yield 3.6%
  10. Lockheed Martin (NYSE:LMT) | LTM Dividend Yield 2.6% | NTM FCF Yield 5.5%

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.