Stock Market

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

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.

Below is a screen of all sectors of the S&P 500 Index
SPX,
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
COMP,
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

Related News  10-year Treasury yield slips to around three-week low despite U.S. March inflation surge

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
XLY
or the Vanguard Consumer Discretionary ETF
VCR.

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.

NCLH Cruiselines

226.6%

744.5%

26.3%

Royal Caribbean Group

RCL Cruiselines

181.0%

520.5%

27.3%

Carnival Corp.

CCL Cruiselines

161.3%

425.3%

30.0%

Las Vegas Sands Corp.

LVS Casinos

58.7%

78.0%

41.5%

Tesla Inc.

TSLA Motor Vehicles

35.3%

49.1%

22.8%

Booking Holdings Inc.

BKNG Travel and other Consumer Services

30.0%

44.7%

16.7%

Wynn Resorts Ltd.

WYNN Casinos

29.5%

37.7%

21.7%

Hilton Worldwide Holdings Inc.

HLT Hotels/Resorts

29.4%

45.4%

15.1%

Expedia Group Inc.

EXPE Travel services

24.9%

35.2%

15.5%

Marriott International Inc. Class A

MAR Hotels/Resorts

24.8%

37.9%

13.0%

MGM Resorts International

MGM Casinos/Gaming

22.0%

34.2%

11.0%

Etsy Inc.

ETSY Internet Retail

19.6%

19.5%

19.8%

Amazon.com Inc.

AMZN Internet Retail

17.4%

17.4%

17.3%

Under Armour Inc. Class A

UAA Apparel/Footwear

16.9%

24.0%

10.1%

Aptiv PLC

APTV Auto Parts: OEM

15.8%

17.6%

14.1%

Chipotle Mexican Grill Inc.

CMG Restaurants

13.2%

14.3%

12.0%

Lennar Corp. Class A

LEN Homebuilding

13.0%

18.5%

7.7%

General Motors Co.

GM Motor Vehicles

12.2%

19.7%

5.1%

D.R. Horton Inc.

DHI Homebuilding

11.7%

17.3%

6.3%

BorgWarner Inc.

BWA 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.
AMZN,
Tesla Inc.
TSLA,
and General Motors Co.
GM.

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.

GPS 23.2%

$0.48

$16.65

2.88%

$0.73

4.38%

Darden Restaurants Inc.

DRI 13.0%

$4.18

$138.56

3.02%

$5.34

3.85%

Best Buy Co. Inc.

BBY 12.5%

$2.80

$99.35

2.82%

$3.54

3.57%

Whirlpool Corp.

WHR 11.2%

$5.60

$206.87

2.71%

$6.93

3.35%

Ralph Lauren Corp. Class A

RL 10.2%

$2.75

$113.09

2.43%

$3.34

2.95%

Yum! Brands Inc.

YUM 9.4%

$2.00

$124.50

1.61%

$2.40

1.92%

Tapestry Inc.

TPR 9.1%

$1.00

$37.46

2.67%

$1.19

3.18%

Home Depot Inc.

HD 8.4%

$6.60

$359.69

1.83%

$7.75

2.16%

Genuine Parts Co.

GPC 7.9%

$3.26

$134.35

2.43%

$3.79

2.82%

Starbucks Corp.

SBUX 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.
HD
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.

PENN Casinos/Gaming

55.00%

$43.00

$73.78

72%

Caesars Entertainment Inc.

CZR Casinos

93.75%

$77.80

$133.36

71%

Bath & Body Works Inc.

BBWI Apparel/Footwear Retail

85.00%

$55.57

$89.50

61%

Etsy Inc.

ETSY Internet Retail

63.64%

$163.14

$244.84

50%

Tapestry Inc.

TPR Apparel/Footwear Retail

69.23%

$37.46

$55.62

48%

CarMax Inc.

KMX 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.

ROST Apparel/Footwear Retail

64.00%

$99.03

$136.41

38%

General Motors Co.

GM Motor Vehicles

80.00%

$56.24

$75.88

35%

D.R. Horton Inc.

DHI Homebuilding

77.27%

$90.33

$120.72

34%

Lennar Corp. Class A

LEN Homebuilding

75.00%

$96.86

$129.06

33%

Amazon.com Inc.

AMZN Internet Retail

96.15%

$3,125.98

$4,119.30

32%

Nike Inc. Class B

NKE Apparel/Footwear

75.00%

$145.11

$185.45

28%

Aptiv PLC

APTV Auto Parts: OEM

69.23%

$145.88

$186.04

28%

PVH Corp.

PVH Apparel/Footwear

52.38%

$100.70

$128.42

28%

TJX Cos. Inc.

TJX Apparel/Footwear Retail

88.00%

$68.51

$86.52

26%

Target Corp.

TGT Specialty Stores

68.75%

$223.84

$280.78

25%

PulteGroup Inc.

PHM Homebuilding

52.94%

$53.10

$65.69

24%

Ulta Beauty Inc.

ULTA Specialty Stores

59.38%

$371.68

$454.23

22%

Darden Restaurants Inc.

DRI Restaurants

70.37%

$138.56

$167.54

21%

Source: FactSet

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