Years of stock market slump ahead? According to Goldman Sachs, these two high-dividend stocks are still worth investing in

• Goldman Sachs recommends investing in stocks with strong dividend policies
• Tapestry wants to continue growing after the billion-dollar takeover of Capri – investors should benefit
• US insurance group American International Group (AIG) with stable earnings

The international stock markets have not really moved for months. Given the continued high interest rates, persistently high inflation and the global economic weakness, sluggish stock market developments are also expected in the coming months. Against this background, analysts at the US investment bank Goldman Sachs argue that shares in companies with high cash reserves are the trump card, especially in times of high inflation and weak economic conditions. These aren’t necessarily the biggest dividend payers – but their combination of cash reserves, share buyback programs and dividend payments results in total returns that easily outpace inflation and provide investors with a “safe haven” in the face of a potential recession on the horizon. Goldman Sachs experts consider the following two high-dividend stocks to be particularly promising.

Tapestry share: Dividend-rich luxury fashion company with high ambitions

One of these two companies is Tapestry, a New York-based multinational holding company that owns three well-known luxury fashion brands: Coach, Kate Spade and Stuart Weitzman. With these three independently operating brands, Tapestry has a global presence as a luxury retailer with the goal of transforming its customer base into an empowered community while promoting sustainability in the fashion industry. The news that Tapestry would acquire Capri Holdings, another fashion parent company with three luxury brands (Versace, Jimmy Choo and Michael Kors) for $8.5 billion, attracted attention in August. Each Capri shareholder will receive $57 per share in this acquisition. This promising acquisition is expected to further boost Tapestry’s business.

However, Tapestry’s most recently presented quarterly figures did not completely convince the investor community. In the fourth fiscal quarter of 2023, the company fell short of quarterly expectations despite a strong full year. Fourth-quarter sales remained virtually unchanged year-over-year at $1.62 billion; However, analysts had expected $1.65 billion. Earnings per share (EPS) for the quarter reached 95 cents, up 20 percent from a year ago but a penny below expectations. As a result of the overall disappointing quarterly figures, Tapestry shares suffered heavy losses.

For the full year, Tapestry reported robust results, including record full-year earnings per diluted share of $3.88, up 22 percent year-over-year based on net income of $936 million. The company distributed about $1 billion to shareholders, supported by free cash flow of $791 million, up from $759 million a year ago. Share repurchases totaled more than $700 million in fiscal 2023, and dividend payments totaled over $283 million. For fiscal 2024, the quarterly dividend was increased by 17 percent to $0.35 quarterly or $1.40 annualized, representing a total return of approximately 13 percent.

Despite the recent somewhat disappointing quarterly report, Brooke Roach from Goldman Sachs is convinced of the good prospects for Tapestry shares. “We recognize the various headwinds in the quarter that were greater than our previous expectations as a result of weaker conversion trends for the value-oriented consumer,” TipRanks quotes Roach’s statement. However, the Goldman Sachs analyst then highlights the positives: “Nevertheless, we are encouraged by Tapestry’s actions to improve sales trends in this area and by management’s commentary regarding a significant acceleration in the last quarter (now flat year-over-year). “We continue to believe that Tapestry’s market positioning, globally diversified business model, Coach’s strong brand momentum and execution of strategic initiatives will continue to drive relative outperformance in a choppy macro environment.”

As a result, Brooke sees significant upside potential for the Tapestry shares. His price target is $46, which is 64.5 percent higher than the current level of Tapestry shares of $27.95 (as of September 27, 2023). Overall, Tapestry’s “Moderate Buy” analyst consensus rating is based on 17 recent analyst reviews, including 12 “Buy” and five “Hold.” According to TipRanks information, the average price target is $46.81, indicating a one-year upside potential of 52 percent.

American International Group: Insurance company spoils its investors

The second company recommended by Goldman Sachs can also look back on a strong dividend history: the insurance group American International Group, whose stock ticker abbreviation AIG is likely to be known to many stock market investors. AIG is a major player in the global insurance sector, offering a comprehensive range of insurance products to commercial and individual customers worldwide. The offering includes property, life, liability, financial, accident and health insurance as well as solutions for retirement planning and various financial services. Another focus of AIG is asset management.

AIG’s corporate figures have been impressive in recent years, after AIG only survived the 2008 financial crisis thanks to government aid. In the second quarter of 2023, AIG reported after-tax profit of $1.3 billion, up nearly 26 percent year over year. Adjusted earnings per share were $1.75; On average, analysts had only expected a value of $1.57. This increase was driven by strong performance in life insurance and pensions, as well as a nine percent decline in diluted shares outstanding, which reduced the supply of freely tradeable securities.

The capital-rich AIG spoiled investors with a generous distribution policy. The company paid out a total of $822 million to shareholders through share repurchases ($554 million) and common stock dividends ($268 million) in the second quarter, marking its first dividend increase since 2016. The total return for investors from dividends and share buybacks is eleven percent.

Given the stable earnings, strong market position and shareholder-friendly distribution philosophy, Goldman Sachs analyst Alex Scott gives AIG shares a “Buy” rating, which he explains as follows: “We remain optimistic that AIG will improve its return on equity of underwriting, greater underwriting leverage, a reduction in costs, capital management/share repurchases and net investment income. We increasingly believe our thesis of improving return on equity and the company’s potential to outperform adjusted BVPS (book value per share). acting is very real.” Given this, Scott expects an even higher return on investment in the future. “Ultimately, we believe the execution of the company’s strategy will result in a return on equity well above 10 percent on all fronts, and with the help of continued higher interest rates, we believe the company will potentially achieve a return on equity of 10 percent and above more quickly , than we expected.”

Scott’s price target of $81 is 32.07 percent above the current level of AIG shares, which last traded at $61.33 (as of September 21, 2023 closing price). Most other analysts, whose average price target according to “TipRanks” is $70.00 per share, also see room for improvement in AIG shares.

This text is for informational purposes only and does not constitute an investment recommendation. finanzen.net GmbH excludes any claims for recourse.

Editorial team finanzen.net

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