16 stock picks to buy with high cash yields: Goldman Sachs

• Goldman Sachs’ David Kostin says investors should buy stocks that make a lot of money.
• He says dividend stocks and consistent repurchases will outperform as the economy weakens.
• Kostin also says companies with higher capex rates will have a harder time.

Whether a recession is imminent or not, Wall Street pundits have been telling investors for some time not to count on dramatic price increases in the coming months.

Goldman Sachs is part of that consensus and the company expects the S&P 500 index to fall to 4,000 sooner rather than later. Chief US Equity Strategist David Kostin wrote in a recent note to clients that in addition to price appreciation, investors should also focus on total returns in the form of dividends and share repurchases.

With the economy apparently losing momentum, he wrote that companies that return cash to their shareholders will become attractive investments in the coming months.

“Companies that return cash to shareholders should outperform those that invest in growth through capex and R&D as economic growth slows,” he wrote. “Over the past 30 years, companies with high cash returns have typically outperformed companies that invested in growth in an environment of weak economic growth.”

The opposite has happened in the first few months of 2023, as high-growth stocks that generally put more money into their companies have outperformed. That was a reversal of what happened in 2022, when growth names were crushed.

But Kostin wrote that the current economic climate is going to change all that.

“We expect capex spending to slow in 2023, representing a headwind for capex-exposed equities,” he wrote.

He also suggested that investors prioritize dividend payers over companies that buy back many of their own shares, as buyback spending is more likely to be reduced when companies face a recession and less favorable business trends.

Kostin wrote that he expects dividends to grow 5% in 2023 while reducing buybacks by 10%, indicating to Kostin and his team that dividend-paying companies will have an easier path.

“Over the past decade, stocks paying high and stable dividends have outperformed stocks with the largest buybacks when underlying dividend growth has been stronger than buyback growth,” Kostin wrote.

Still, he says conditions will favor cash returners overall, and the following 16 stocks are returning cash to shareholders at a much higher rate than their peers. While the median total return of constituent stocks of the S&P 500 is 4%, these companies return 12% to 36% year over year.