Goldman Sachs Group Inc (GS): Double-Digit Dividend Growth Stock Or Value Trap?

Dividend Safety Analysis: Goldman Sachs

We analyze 25+ years of dividend data and 10+ years of fundamental data to understand the safety and growth prospects of a dividend.

Our Dividend Safety Score answers the question, “Is the current dividend payment safe?” We look at some of the most important financial factors (2) such as current and historical EPS and FCF payout ratios, debt levels, free cash flow generation, industry cyclicality, ROIC trends, and more.

Dividend Safety Scores range from 0 to 100, and conservative dividend investors should stick with firms that score at least 60. Since tracking the data, companies cutting their dividends had an average Dividend Safety Score below 20 at the time of their dividend reduction announcements.

We wrote a detailed analysis reviewing how Dividend Safety Scores are calculated, what their track record has been, and how to use them for your portfolio here.

Goldman Sachs Group Inc (NYSE:GS) has a Dividend Safety Score of 82, suggesting that the company’s dividend is extremely safe, primarily due to two factors.

First, the dividend payout ratio is very low, at just 21% of trailing 12 month diluted earnings per share. In addition, the bank’s rising capital ratios (i.e. its strong balance sheet), mean that it should continue to easily pass the annual Federal Reserve stress test.

That in turn means it is likely to get its annual Comprehensive Capital Analysis and Review, or CCAR, in which it requests permission to return cash to shareholders, approved by regulators.

It’s also worth noting that Goldman Sachs was able to maintain its regular common dividend during the financial crisis. The company’s payout ratio spiked in 2008 but remained below 40%:

Source: Simply Safe Dividends

Dividend Growth Analysis

Our Dividend Growth Score answers the question, “How fast is the dividend likely to grow?” It considers many of the same fundamental factors as the Safety Score but places more weight on growth-centric metrics like sales and earnings growth and payout ratios. Scores of 50 are average, 75 or higher is very good, and 25 or lower is considered weak.

Goldman Sachs has a Dividend Growth Score of 88, one of the highest of any major bank, and an indicator that its payout may continue growing strongly for many years to come.

As seen below, Goldman Sachs has delivered double-digit dividend growth for many years. The company’s low payout ratio positions it well to continue rewarding shareholders with double-digit dividend growth in the coming years.

Source: Simply Safe Dividends

However, investors need to note that Goldman Sachs isn’t a company that raises its dividend on a yearly basis. For example, in the past it’s gone as long as three years with the same dividend, meaning that shareholders seeking either generous current income or annual dividend growth might want to look elsewhere.

Source: Simply Safe Dividends