The market is pricing an overly pessimistic level of dividend payouts by U.S. companies, according to Goldman Sachs Group Inc.
The valuation gap between high- and low-dividend-yield stocks is close to the widest it has been in the last 40 years, reflecting low expectations for future dividend growth, strategists led by Cole Hunter and David Kostin wrote in a note Monday.

Swap-market prices imply that dividend-per-share growth will slow from 8% in 2019 to 1% in 2020, while Goldman Sachs sees earnings per share expansion accelerating as growth rebounds and “idiosyncratic” headwinds abate.

“We find it unlikely that the pace of dividend-per-share growth will slow so dramatically as the pace of earnings growth accelerates,” the strategists wrote.

Companies paying high dividends have been trailing their peers in Europe as well, prompting Morgan Stanley to suggest that firms in the former camp switch to buybacks. One the other hand, Singapore is seen as attractive by Credit Suisse Group AG’s private-banking unit partially because of its high payouts.

Goldman sees dividends per share on the S&P 500 growing by 3.5% annually through 2028, versus the swap market pricing a growth of just 0.7% a year over that time.

This article provided by Bloomberg News.