Top Dividend Stocks Favored By Goldman Sachs

Includes: GE, JNJ, MO, MSFT, PM
by: Efsinvestment

By Aubrey Tabuga

Goldman Sachs, a premier investment bank with global dominance, had an enormous $250 billion under its management at the end of the third quarter. Its investment portfolio is heavy in the financial sector (29.86%), services (17.27%), technology (14.93%), and energy (8.83%). The firm is famous for gaining large sums from the collapse in subprime mortgage bonds in the summer of 2007. Goldman Sachs was one of the few investment companies that shorted mortgage bonds just before the system started shaking.

As Goldman Sachs is one of the most respected institutions on the street, it is worth looking into this gigantic asset manager's 13F Filing for dividend stocks that can bring a steady stream of income. The top dividend stocks of Goldman in the latest quarter are Microsoft Corp. (NASDAQ:MSFT), General Electric Co. (NYSE:GE), Philip Morris International, Inc. (NYSE:PM) Altria Group Inc. (NYSE:MO), and Johnson & Johnson (NYSE:JNJ). All these stocks have been on Goldman's 13F for at least the last couple of years. I look into each of these from a fundamental viewpoint to check whether these are worth buying or not.


Shares Held

Market Value

% of Portfolio

% Change


EPS (next 5Y)

Microsoft Corp.







General Electric Co.







Philip Morris International, Inc.







Altria Group Inc.







Johnson & Johnson







Sources: &;

Annualized Dividend Amount

Microsoft Corp.

General Electric Co.

Philip Morris International, Inc.

Altria Group Inc.

Johnson & Johnson











































Goldman has bought additional shares of Microsoft for the second time within the last seven quarters. It had increased its holding by 7% bringing the total shares to over 64.923 million or 0.77 of its total portfolio. The company is one of Goldman's most favored stocks. Except in the first quarter of the current year, Microsoft has been among Goldman's top 10 stocks at least in the couple of years that have passed. Microsoft, the giant software company and maker of Windows, recently got lower estimates by Bank of America/Merrill Lynch due to a decline in the demand for PCs. The price target given was $35 with a rating of "buy." This was nonetheless higher by 24% over the prevailing price at publication time.

The stock price had gained some a bit this year, but is going down recently. Nevertheless, the company's profitability at a net margin of 21.71% is not something that investors can easily put aside. Microsoft remains the dividend generator of large fund managers. It has a yield of 3.45%. The dividend amount that it declared this month to be paid in the first quarter of 2013 is about 14% higher than that for the same period this year. This may not be sustainable in the long run if the increasing trend of its payout ratio continues. From a historical level of 28.52%, the payout ratio of Microsoft had gone up to 44.40%. Indeed, the EPS contracted by 25.91% this year although it is likely to grow by 11.72% next year. In the long term, EPS is likely to go up by 9.83% each year.

General Electric

Goldman reduced its position in the technology company by 2.289 million shares or 2%. As of the end of September, Goldman's stake was at 74.693 million shares, which is worth approximately $1.696 billion. The investment firm bought an additional 27% during the previous quarter. GE has been one of the most favored stocks, being in Goldman's top 10 in the last six quarters.

General Electric Company is a leading technological innovator. The company had recently embarked on a joint venture with several partners to produce a 97,000-square foot diesel engine facility in Astana, Kazakhstan. In addition, the Fairfield, Connecticut-based company had also signed a $394 million deal to create wind turbines in Brazil. GE stock had gained 21.52%. The profit margin is currently 9.90%. The forward P/E of 12.49 is lower than the current one at 15.73. Meanwhile, GE's dividend yield is currently at 3.20%. The company continues to pay stable and increasing dividends. This is likely to be sustained as shown by its payout ratio, which went down to 50.27% from a historical level of 55.59%. The EPS grew by 7.36% this year. Investors can also expect robust growth in earnings per share in the future, with an annual rate of 11.05%.

Philip Morris International

Goldman slightly reduced its position in Philip Morris in the latest quarter. As of the end of September, its holdings amounted to 15.281 million or 0.55% of Goldman's total portfolio. The fund manager had just tripled its stake in the cigarette company during the second quarter. Philip Morris International Inc. is a global leader in manufacturing and selling cigarettes and other tobacco products such as the brands Marlboro, Virginia Slims, L&M, and Philip Morris.

The stock had gained 15.89% from a year ago. The company's profitability and impressive EPS growth are the factors that contribute to PM's attractiveness as an investment. The forward P/E of 15.24 is quite lower than the current ratio at 17.71. Those who are seeking stable dividend income favor this stock because this company holds an impressive record of paying increasing dividends. The latest payment was 9.9% higher than that for the previous year's period. Likewise, the company has shown an improved ability to generate dividend income based on its payout ratio. From 77.49%, the current payout ratio of PM is now 63.26%, thanks to a jump of the EPS by 23.58%. Investors can also look forward to an average annual growth of earnings per share of 9.85% each year in the long term.

Altria Group

Goldman continued to buy additional shares of Altria Group in the latest quarter. The investment firm increased its stake by a massive 272% in the previous quarter. As of the end of September, the holding made up 0.51% of Goldman's total investment portfolio. Altria is the U.S. leader in cigarette sales with a market share at 50%. Since its split from Philip Morris, Altria had diversified into smokeless products and other markets. Its diverse product mix and extensive cost savings program are factors that can drive this company to grow by 5% next year. This is so amidst the anticipated decline in the industry in general.

The stock had gained 16.76% from the previous year. So far, it is highly profitable with a net margin of 15.98%. Meanwhile, the forward P/E is 13.99, lower than the current P/E of 17.34. Altria's yield is a high 5.29%. The dividend amount has been increasing since 2008. In fact, the latest payment received last October was 7% higher than the amount in the same period last year. On the other hand, the company is more likely to sustain this trend if it improves its payout ratio. The current ratio is 87.18%, higher than the historical level of 78.80%. Despite a decline of 21.56% in this year's EPS, the long-term annual growth estimate is at 6.70%.

Johnson & Johnson

Goldman Sachs reduced its position in Johnson & Johnson by 5% in the latest quarter. The firm had increased its stake by 54% in the second quarter. Johnson & Johnson, a global healthcare products company based in New Brunswick, New Jersey, had recently obtained support from a federal advisory panel for its drug called bedaquiline, an anti-tuberculosis drug. J&J had also announced that Chairman William Weldon will step down from office and end his 41 years with the company on December 28, from which the new CEO Alex Gorsky will assume the additional role as chairman.

The stock had gained 10.64% from the previous year. The company enjoys a profit margin of 12.39%. Moreover, JNJ's current dividend yield is 3.49%. It is also favored by the likes of George Soros for its outstanding record of paying dividends for years. The latest dividend payment was 6.8% higher than the one made in the same period last year. However, the company's ability to produce dividends may have weakened. From a historical ratio of 46.72%, the payout significantly rose up to 76.21% brought by a contraction of the company's earnings per share this year. However, EPS is likely to rise next year by 7.86%. The long-term growth estimate of earnings per share is 6.41% per year.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: EfsInvestment is a team of analysts. This article was written by Aubrey Tabuga, one of our equity researchers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.

About this article:

Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500. Become a contributor »
Problem with this article? Please tell us. Disagree with this article? .