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Why Goldman Sachs (GS) is a Great Dividend Stock Right Now

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Goldman Sachs in Focus

Based in New York, Goldman Sachs (GS) is in the Finance sector, and so far this year, shares have seen a price change of 15.73%. Currently paying a dividend of $2.75 per share, the company has a dividend yield of 2.46%. In comparison, the Financial - Investment Bank industry's yield is 0.81%, while the S&P 500's yield is 1.59%.

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In terms of dividend growth, the company's current annualized dividend of $11 is up 4.8% from last year. In the past five-year period, Goldman Sachs has increased its dividend 4 times on a year-over-year basis for an average annual increase of 26.83%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Goldman's current payout ratio is 43%. This means it paid out 43% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for GS for this fiscal year. The Zacks Consensus Estimate for 2024 is $36.57 per share, with earnings expected to increase 59.90% from the year ago period.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that GS is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).

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