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

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Since the depths of the financial crisis, plenty of big banks such as Bank of America Corp (NYSE:BAC), Citigroup Inc (NYSE:C), and JPMorgan Chase & Co. (NYSE:JPM) have managed to rebound nicely and beat the market.

However, pure play investment banks such as Goldman Sachs Group Inc (NYSE:GS) and Morgan Stanley (NYSE:MS) have lagged the S&P 500 by large margins.

Stock Total Return Since March 3, 2009
Bank of America 381%
Citigroup 311%
JPMorgan Chase 290%
Goldman Sachs 137%
Morgan Stanley 102%
S&P 500 259%

Find out whether or not Goldman Sachs’ poor performance could represent a long-term buying opportunity or whether the poor stock performance is a sign of something rotten in this venerable financial institution.

In other words, is Goldman Sachs a classic deep value dividend growth stock or a value trap to be avoided? The company has rewarded shareholders with nearly 10% annual dividend growth over the past 10 years and has solid income growth potential going forward.

Let’s take a closer look at Goldman Sachs to see if it is the type of stock we would be interested in owning in our Top 20 Dividend Stocks portfolio (1).

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Business Description

Goldman Sachs was founded in 1869 and is one of the oldest and largest standalone investment banks in the world. It serves, private, institutional (corporate, hedge fund, pensions, foundations, endowments), and governments through four business segments:

– Investment Banking: advice for corporate needs such as IPOs, mergers & acquisitions, divestitures, defense against hostile takeovers, spinoffs, raising debt capital, private placements, and derivatives

– Institutional Client Services: acts as broker, clearinghouse, and market maker for major institutions such as hedge funds, ie actually executes trades and keeps tracks of institutional portfolios, dividends, tax forms, for markets such as: stocks, currencies, interest rate products, mortgages, and options

– Investing & Lending: originates and invests in long-term loans, investments, and real estate

– Investment Management: fee based advice, wealth management, and brokerage service

For the first 9 months of 2016, here’s how Goldman’s sales have broken out by segment.

Business Segment YTD Revenue % of Revenue YoY Growth
Investment Banking $4.787 billion 21.3% -13%
Institutional Client Services $10.872 billion 48.5% -11%
Investing & Lending $2.596 billion 11.6% -37%
Investment Management $4.183 billion 18.6% -10%
Total $22.438 billion 100.0% -15%

Source: Goldman Sachs Earnings Release

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