The Defensive Investing Strategy That Feels Sort Of Offensive

Key Takeaways:

• If a recession is on the way, it might be time to follow the smart money. 
• There’s increasing interest among investors in dividend stocks. 
• Making money is never a conservative strategy. 

Dividend investing gets a false rap as a conservative investing strategy. 

While it can be defensive, it’s hardly conservative. 

As we recently pointed out in The Juice, the ETF that holds top dividend-paying stocks – the ProShares S&P 500 Dividend Aristocrats ETF (NOBL) – returned 75% from its March 2020 pandemic low. That’s right up there with the S&P 500 (SPY), Nasdaq 100 (QQQ), and seemingly more aggressive tech-focused ETFs.   

What’s more? NOBL and similar ETFs that hold dividend stocks, such as the Schwab US Dividend Equity ETF (SCHD), have experienced only single-digit percentage losses so far in 2022, relative to the double-digit dives we’ve seen in the indices and aforementioned tech ETFs. Some, particularly the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) are even up YTD. 

Source: Google Finance

Go On The Offensive

Just this week, Goldman Sachs suggested investors buy dividend stocks to counter predictably slower economic growth.

The bank’s message in a nutshell?

While a weak economy tends to hurt most companies and can be a drag for stocks, investors reward firms that increase their dividend payouts as broad economic conditions lag. 

Consider the relative outperformance of these dividend ETFs foreshadowing. The idea that the so-called smart money goes to smart places before the average investor. 

Goldman’s Picks

Goldman highlighted 14 stocks investors should buy on this conviction: 

• NRG Energy (NRG)
• Invesco (IVZ)
• T Rowe Price (TROW)
• Best Buy (BBY)
• Whirlpool (WHR)
• IBM (IBM)
• Viatris (VTRS)
• Gilead Sciences (GILD)
• Huntington Bancshares (HBAN)
• Verizon Communications (VZ)
• Pioneer Natural Resources (PXD)
• Simon Property Group (SPG)
• Devon Energy (DVN)
• Lumen Technologies (LUMN)

Goldman expects these stocks to return between 4% (NRG) and 9.5% (LUMN) in 2023 on the basis of the dividends they pay alone, independent of share price. That’s saying something in the present environment. 

The Juice’s Proprietary Data Backs Up Goldman’s Interest

We took the names on Goldman’s list and plugged them into our Trackstar database, which tells us the stocks financial pros are searching for across the financial media. 

The results reflect meaningful interest in half of the Goldman stocks. 

Seven of the 14 tickers rank in the top 10 most searched in their respective industries. 

For example, TROW is the second most searched for ticker in the Asset Management sub-sector, right behind Blackstone Group (BX). 

BBY ranks 8th in Speciality Retail. 

WHR is first, way ahead of number two, Leggett & Platt (LEG), in the Furnishing, Fixtures & Appliances sub-category of Consumer Cyclical stocks. 

IBM is the most searched for Information Technology stock. 

GILD ranks sixth in the general Drug Manufacturers space. 

VZ is second, behind AT&T (T), among Telecom Services companies. 

SPG comes in first most searched among retail-focused Real Estate Investment Trusts (REITs). 

The Bottom Line: Making money is not a conserative strategy, no matter how you go about it. 

While dividend investing sometimes gets a reputation as being for more conservative investors, recent returns show it’s anything but. At least if you measure these things on the basis of past performance, returns during periods of broad downside, and expected returns during an economic slowdown. 

Goldman Sachs suggests buying a basket of dividend stocks. As we dug into our proprietary Trackstar data we uncovered interest in many of the names Goldman touts.  Simply put, they’re on the smart money’s radar. 

This could make these stocks – as well as the ETFs mentioned – something to consider as part of a larger, comprehensive investment strategy, particularly if increasing prospects of recession in 2023 and beyond concern you.