Investors loved growth stocks during the stock market rally. With stocks now in a downtrend, investors are now looking less towards growth and now towards safety. One way investors can find safety is by focusing on companies that pay dividends.
However, no dividend is alike. Income investors need to look at a stock’s payout ratio, to ensure a company isn’t paying out more than it’s earning.
Another factor to consider is dividend growth. Over time, it’s more rewarding to own companies that grow their dividends than to buy a high-yielding stock with little or no dividend growth.
There have been a number of dividend growth plays even in recent months. Companies that can raise their dividends now are likely worth looking at owning for the longer term.
One such opportunity is in Goldman Sachs (GS). The investment bank is raising its annual payout from $2.00 to $2.50, a sizeable jump.
Currently, the company enjoys a sizeable profit margin. But declining market activity has led to a 30 percent revenue drop in the past year.
Action to take: At current prices, the new dividend yield will pay investors a starting yield of about 3 percent, with room for more growth. Buyers should look to buy a little at a time to take advantage of the current market downtrend.
For traders, shares will likely trade downward with markets in the coming weeks. The November $260 puts, last going for about $10.80, offer mid double-digit gains in the coming weeks on a further drop in shares.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.