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This sector of the S&P 500 is expected to show the fastest sales and dividend growth in 2022 and 2023

MarketWatch logo MarketWatch 1/23/2022 Philip van Doorn
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DEEP DIVE

Which sector of the S&P 500 do you think will post the best sales growth this year and in 2023? You might be surprised at what analysts expect — and rapid sales growth might be tied to some lucrative stock investments.


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Below is a screen of all sectors of the S&P 500 Index then narrower stock screens within the “winning” sector by sales projections.

So far this year, investors have been jittery because of the Federal Reserve’s policy reversal, to fighting inflation by raising interest rates rather than doing anything it could to spur economic growth during the pandemic.

In a strategy report for clients on Jan. 17, analysts at BCA Research wrote: “We subscribe to the view that expansions are more likely to be murdered by the Fed than die of old age. It’s hard to envision a plausible scenario in which the Fed could hike rates enough in 2022 to kill this one, though, and even the first half of 2023 would be a reach.”

We have already seen that the prospect of rising interest rates has pressured stocks that have higher valuations to earnings. The Nasdaq Composite Index which is heavily weighted toward technology stocks, just suffered its first correction (a decline of 10% of more) since March.

Getting back to the BCA comment, the U.S. economy is so large that it isn’t easily cooled-down by the Fed. Investors who flee the stock market in an effort to time their return after rising interest rates have their effect, risk returning too late and missing significant growth in the meantime.

S&P 500 sector projections

The following projections are based on consensus estimates among analysts polled by FactSet, weighted by market capitalization. (The S&P 500 is cap-weighted.) The projections are broken into three tables showing expected changes in sales per share, earnings per share and dividends paid per share. The estimates are for calendar years, as scores of S&P 500 companies have fiscal years that don’t match the calendar.

Sales growth

First, here are projected changes in sales per share through 2023, with the sectors in alphabetical order and the full index at the bottom:

S&P 500 sector Est. sales growth – 2022 Est. sales growth – 2023 2-year est. sales CAGR Est. sales per share – 2021 Est. sales per share – 2022 Est. sales per share – 2023 Communication Services 8.1% 8.0% 8.0% $69.99 $75.63 $81.67 Consumer Discretionary 13.6% 10.7% 12.1% $541.52 $615.23 $680.86 Consumer Staples 4.0% 3.8% 3.9% $510.86 $531.14 $551.21 Energy 5.5% -1.4% 2.0% $388.53 $409.98 $404.21 Financials 2.3% 5.5% 3.9% $228.50 $233.64 $246.52 Health Care 6.7% 3.5% 5.1% $798.76 $852.39 $881.86 Industrials 11.5% 5.8% 8.6% $373.50 $416.31 $440.34 Information Technology 8.5% 8.5% 8.5% $399.25 $433.33 $470.24 Materials 4.1% -0.2% 1.9% $243.32 $253.18 $252.79 Real Estate 8.9% 6.1% 7.5% $33.75 $36.74 $38.99 Utilities 0.6% 2.7% 1.6% $119.08 $119.82 $123.01 Full S&P 500 7.3% 5.6% 6.5% $1,557.78 $1,672.20 $1,765.40 Source: FactSet

The consumer discretionary sector is expected to show the most rapid increases in sales per share this year and in 2023, and to have the best two-year compound annual growth rate (CAGR) for sales.

Earnings growth

Leaving the sectors in the same order, here are projections for earnings per share:

S&P 500 sector Est. EPS growth – 2022 Est. EPS growth – 2023 2-year est. EPS CAGR Est. EPS – 2021 Est. EPS – 2022 Est. EPS – 2023
Communication Services 6.9% 14.7% 10.7% $11.99 $12.81 $14.70
Consumer Discretionary 33.0% 23.2% 28.0% $36.80 $48.95 $60.29
Consumer Staples 6.0% 7.8% 6.9% $34.85 $36.94 $39.83
Energy 27.2% -5.6% 9.6% $30.81 $39.19 $36.99
Financials -9.5% 12.9% 1.1% $49.00 $44.35 $50.09
Health Care 8.2% 1.2% 4.6% $88.52 $95.75 $96.89
Industrials 34.5% 17.7% 25.8% $31.86 $42.85 $50.45
Information Technology 9.9% 11.6% 10.8% $98.72 $108.47 $121.10
Materials 5.3% -4.4% 0.3% $32.35 $34.07 $32.56
Real Estate 7.1% 7.4% 7.2% $12.42 $13.30 $14.28
Utilities 5.0% 7.1% 6.0% $16.64 $17.47 $18.70
Full S&P 500 9.0% 10.1% 9.6% $203.75 $222.15 $244.59
Source: FactSet

The industrial sector is expected to achieve the best EPS growth this year, trailed closely by the consumer discretionary sector, which is expected to take the lead in 2023 and have the best two-year EPS CAGR.

Dividend increases

Again leaving the sectors in alphabetical order, here are projections for dividend increases through 2024:

S&P 500 sector Est. dividend growth – 2022 Est. dividend growth – 2023 2-year est. dividend CAGR Est. dividends per share – 2021 Est. dividends per share – 2022 Est. dividends per share – 2023
Communication Services 3.4% 7.2% 5.3% $2.07 $2.14 $2.29
Consumer Discretionary 16.8% 13.4% 15.1% $7.89 $9.21 $10.45
Consumer Staples 4.9% 5.1% 5.0% $18.46 $19.36 $20.36
Energy -1.6% 3.0% 0.7% $17.54 $17.26 $17.78
Financials 11.8% 8.6% 10.2% $11.35 $12.69 $13.78
Health Care 7.0% 6.0% 6.5% $22.81 $24.41 $25.87
Industrials 8.7% 10.1% 9.4% $12.15 $13.20 $14.54
Information Technology 7.7% 7.2% 7.4% $22.71 $24.45 $26.20
Materials 7.0% 3.8% 5.4% $9.49 $10.15 $10.53
Real Estate 10.0% 6.1% 8.1% $7.20 $7.93 $8.41
Utilities 2.4% 5.9% 4.1% $10.59 $10.84 $11.48
Full S&P 500 7.1% 7.1% 7.1% $59.62 $63.87 $68.43
Source: FactSet

The consumer discretionary sector is expected to show the highest dividend growth, by far, among S&P 500 sectors through 2023.

A screen of consumer discretionary stocks

One way to invest in the entire sector is by selecting an exchange-traded fund that tracks it, such as the Consumer Discretionary Select SPDR ETF or the Vanguard Consumer Discretionary ETF

There are 60 stocks in the S&P 500 consumer discretionary sector, which includes companies in the hotel, cruise line, casino and travel services industries that have been grossly affected by the pandemic. With a strengthening recovery in travel-related industries expected over the next two years, it is no surprise that these industries top lists of companies with highest projected growth rates for sales and earnings.

Then again, there are plenty of companies outside these industries expected to put up impressive sales numbers.

With earnings for so many of these companies expected to be negative this year or to turn positive following losses in 2021, the following screens won’t include earnings projections.

Here are three screens of stocks within the consumer discretionary sector.

Sales

Among the 60 stocks in the S&P 500 consumer discretionary sector, here are the 20 expected to increase sales the most rapidly through 2023:

Company Ticker Industry 2-year est. sales CAGR Est. sales growth – 2022 Est. sales growth – 2023
Norwegian Cruise Line Holdings Ltd. Cruiselines 226.6% 744.5% 26.3%
Royal Caribbean Group Cruiselines 181.0% 520.5% 27.3%
Carnival Corp. Cruiselines 161.3% 425.3% 30.0%
Las Vegas Sands Corp. Casinos 58.7% 78.0% 41.5%
Tesla Inc. Motor Vehicles 35.3% 49.1% 22.8%
Booking Holdings Inc. Travel and other Consumer Services 30.0% 44.7% 16.7%
Wynn Resorts Ltd. Casinos 29.5% 37.7% 21.7%
Hilton Worldwide Holdings Inc. Hotels/Resorts 29.4% 45.4% 15.1%
Expedia Group Inc. Travel services 24.9% 35.2% 15.5%
Marriott International Inc. Class A Hotels/Resorts 24.8% 37.9% 13.0%
MGM Resorts International Casinos/Gaming 22.0% 34.2% 11.0%
Etsy Inc. Internet Retail 19.6% 19.5% 19.8%
Amazon.com Inc. Internet Retail 17.4% 17.4% 17.3%
Under Armour Inc. Class A Apparel/Footwear 16.9% 24.0% 10.1%
Aptiv PLC Auto Parts: OEM 15.8% 17.6% 14.1%
Chipotle Mexican Grill Inc. Restaurants 13.2% 14.3% 12.0%
Lennar Corp. Class A Homebuilding 13.0% 18.5% 7.7%
General Motors Co. Motor Vehicles 12.2% 19.7% 5.1%
D.R. Horton Inc. Homebuilding 11.7% 17.3% 6.3%
BorgWarner Inc. Vehicle parts and drive systems 11.3% 12.4% 10.1%
Source: FactSet

Among the 20, nine are outside the hotel, cruise line, casino and travel services industries. These include Amazon.com Inc. Tesla Inc. and General Motors Co.

You can click on the tickers for more about each company.

Then read Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

Dividend growth

For dividend projections, there needs to be a starting point. Even though the consumer discretionary sector is expected by analysts to post the most rapid growth in dividend payouts through 2023, 25 of the 60 companies don’t pay any dividends on common shares currently, according to FactSet.

Among the 60 stocks, 20 have dividend yields of at least 1.50% and consensus estimates available for their dividend payouts in 2022 and 2023. Narrowing the list further, here are the 10 expected to increase their payouts the most over the next two years:

Company Ticker 2-year est. dividend CAGR Current annual dividend per share Closing price – Jan. 19 Current dividend yield Est. dividend per share – 2023 Projected yield – 2023 based on current share price
Gap Inc. 23.2% $0.48 $16.65 2.88% $0.73 4.38%
Darden Restaurants Inc. 13.0% $4.18 $138.56 3.02% $5.34 3.85%
Best Buy Co. Inc. 12.5% $2.80 $99.35 2.82% $3.54 3.57%
Whirlpool Corp. 11.2% $5.60 $206.87 2.71% $6.93 3.35%
Ralph Lauren Corp. Class A 10.2% $2.75 $113.09 2.43% $3.34 2.95%
Yum! Brands Inc. 9.4% $2.00 $124.50 1.61% $2.40 1.92%
Tapestry Inc. 9.1% $1.00 $37.46 2.67% $1.19 3.18%
Home Depot Inc. 8.4% $6.60 $359.69 1.83% $7.75 2.16%
Genuine Parts Co. 7.9% $3.26 $134.35 2.43% $3.79 2.82%
Starbucks Corp. 6.3% $1.96 $96.87 2.02% $2.21 2.28%
Source: FactSet

Dividend compounding can be effective for investors wishing to build up dividend income while still pursuing long-term growth. In the right-most column, there are hypothetical dividend yields based on the consensus 2023 payout estimates and closing share prices on Jan. 19.

Consider Home Depot Inc. for a five-year example. If you had purchased the stock at the close on Jan. 19, 2017, you would have paid $135.39 a share. At that time, the annual dividend rate was $2.76 a share, for a yield of 2.04%. If you had held the shares through Jan. 19, 2022, your annual dividend would have increased to $6.60 a share, for a yield of 4.87% for your five-year-old shares. Meanwhile, your share price would have increased by 166% to $359.69. In this example, dividends weren’t reinvested. If they were, the five-year return on Home Depot shares would have been 198%.

You can read more about dividend compounders here.

Analysts’ price targets

While the two screens above focus on estimates through 2023, ratings and price targets set by analysts who work for brokerage firms are based on 12-month outlooks.

Among the 60 stocks in the S&P 500 consumer discretionary sector, there are 20 with majority “buy” or equivalent ratings, for which the analysts see more than 20% upside over the next year, and only two (the top two) are in the hotel, cruise line, casino or travel services industries:

Company Ticker Industry Share “buy” ratings Closing price – Jan. 19 Consensus price target Implied 12-month upside potential
Penn National Gaming Inc. Casinos/Gaming 55.00% $43.00 $73.78 72%
Caesars Entertainment Inc. Casinos 93.75% $77.80 $133.36 71%
Bath & Body Works Inc. Apparel/Footwear Retail 85.00% $55.57 $89.50 61%
Etsy Inc. Internet Retail 63.64% $163.14 $244.84 50%
Tapestry Inc. Apparel/Footwear Retail 69.23% $37.46 $55.62 48%
CarMax Inc. Specialty Stores 68.75% $107.63 $152.20 41%
Chipotle Mexican Grill Inc. CMG Restaurants 64.52% $1,467.68 $2,022.11 38%
Ross Stores Inc. Apparel/Footwear Retail 64.00% $99.03 $136.41 38%
General Motors Co. Motor Vehicles 80.00% $56.24 $75.88 35%
D.R. Horton Inc. Homebuilding 77.27% $90.33 $120.72 34%
Lennar Corp. Class A Homebuilding 75.00% $96.86 $129.06 33%
Amazon.com Inc. Internet Retail 96.15% $3,125.98 $4,119.30 32%
Nike Inc. Class B Apparel/Footwear 75.00% $145.11 $185.45 28%
Aptiv PLC Auto Parts: OEM 69.23% $145.88 $186.04 28%
PVH Corp. Apparel/Footwear 52.38% $100.70 $128.42 28%
TJX Cos. Inc. Apparel/Footwear Retail 88.00% $68.51 $86.52 26%
Target Corp. Specialty Stores 68.75% $223.84 $280.78 25%
PulteGroup Inc. Homebuilding 52.94% $53.10 $65.69 24%
Ulta Beauty Inc. Specialty Stores 59.38% $371.68 $454.23 22%
Darden Restaurants Inc. Restaurants 70.37% $138.56 $167.54 21%
Source: FactSet

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