Goldman Sachs and Morgan Stanley Dividend Stock Picks

The S&P 500 has climbed 0.4% in the first four days of September, as investors turn toward dividend-paying stocks to mitigate volatility stemming from rising Treasury yields and uncertainty regarding Federal Reserve interest rate policy [1]. Analysts at Goldman Sachs and Morgan Stanley are currently highlighting specific dividend-paying equities as a defensive strategy to stabilize portfolios against high valuations and shifting macroeconomic conditions [1, 2].

Dividend strategies in volatile markets

Morgan Stanley strategist Todd Castagno notes that companies raising dividends have historically outperformed the broader market by an average of 3.1% in the six months following the increase [1]. This defensive positioning comes as traders monitor potential Federal Reserve rate hikes scheduled for less than two weeks from now [1]. While the broader market faces pressure from rising oil prices and Treasury yields, analysts are screening for firms with consistent payout growth to provide a reliable income stream [1].

Energy and financial sectors feature prominently in recent institutional research. Devon Energy, which recently appeared on Goldman Sachs’ list of cheap dividend-paying energy plays, raised its quarterly dividend by 33% to 32 cents per share in May [1]. The stock is up 31% year-to-date as oil prices approach $100 a barrel [1]. Similarly, East West Bancorp reported second-quarter earnings of $2.63 per share, exceeding the FactSet consensus of $2.61 per share, and has raised its full-year net interest income growth forecast to a range of 7% to 9% [1].

High-yield opportunities

Goldman Sachs’ Conviction List, which identifies stocks analysts believe are highly likely to outperform, includes United Parcel Service (UPS) with a dividend yield of 6.43% [2]. Despite headwinds from the company’s decision to reduce shipping volume for Amazon by more than 50% by the second half of 2026, the firm maintains a $132 price target on the stock [2]. Other notable dividend plays include Citizens Financial Group, which offers a 2.56% yield, and ConocoPhillips, which maintains a 2.55% yield following its $22.5 billion acquisition of Marathon Oil in November 2024 [2].

What to watch

• Federal Reserve Meeting: The central bank’s upcoming interest rate decision, occurring in less than two weeks, remains a primary catalyst for market volatility [1].
• Energy Price Trends: Monitor the price of oil as it approaches the $100-per-barrel threshold, which influences the performance of exploration and production plays like Devon Energy and ConocoPhillips [1, 2].
• Dividend Sustainability: Watch for updates on UPS’s logistics strategy as the company continues to pivot toward more profitable business segments following the reduction of its Amazon contract [2].

The current focus on dividend-paying stocks reflects a broader attempt by institutional investors to find stability as the market grapples with the dual pressures of rising energy costs and potential monetary tightening. Whether these income-focused strategies can maintain their outperformance depends on the Federal Reserve's upcoming policy path and the ability of these firms to sustain their payout growth in a slower-growth environment.