NEW YORK (TheStreet) -- Goldman Sachs is projecting that 46% of stock returns over the next decade will be from dividends. This is certainly good news for dividend investors. Unfortunately the stock market is trading at an elevated price-to-earnings ratio. As a result, total stock market returns are expected to average just 5% a year over the next decade.
The key takeaway from Goldman Sachs -- invest in dividend growth stocks. Dividend growth stocks will likely give investors better gains than the stock market in general over the next decade as dividends become more important to total returns. Dividend growth stocks are investors' best opportunity to take advantage.
Goldman Sachs recently added several new stocks to their dividend growth basket. Here are 10 of them:
Baxter (BAX) is a medical supply and biotechnology company with a market cap of over $37 billion and is the largest publicly traded medical supply business.
Baxter has paid steady or increasing dividends each year since 1984 (excluding the effects of spinoffs). The company currently has a dividend yield of 3% and a payout ratio of under 40%. Baxter's combination of a conservative payout ratio, long dividend history and high dividend yield bodes well for income-oriented investors. The company has compounded earnings per share at 13.9% a year.
Baxter's growth has come from new product sales and global expansion in both medical supply and biotechnology. The company's growth has been slower than expected over the last five years but the company has responded by proposing a spinoff its biopharmaceutical business to unlock value and create two companies, the second being a medical supplies business. The medical supplies business generated $10.7 billion in fiscal 2014 while the biopharmaceutical business generated $6 billion in sales in fiscal 2014. The spinoff is expected to be completed in 2015.
Baxter's stock currently trades at a price-to-earnings ratio of 20.1. The company is trading slightly below the S&P 500's current price-to-earnings ratio of 20.8. Baxter appears to be a sound investment relative to the overall market. The company has grown earnings per share significantly faster than the market over the last decade, has a higher dividend yield, and has a long history of success.