Now that the S&P 500 has staked yet another record high, the stock market indicator may have nowhere else to go.
Goldman Sachs analysts believe the index may climb a bit higher before its ascent is over at least for the next 12 months. Strategist David Kostin and his team see the index rising to 2,150 in the next couple of months-another 1 percent or so from its mid-day levels Monday-before seesawing around and ultimately settling around 2,100 by year's end.
The next 12 months hold little prospect for gain, according to the analysis, with the index at just 2,125 in 12 months, which would be basically flat from here. ( Tweet This )
The forecast comes as Wall Street deals with economic growth considerably slower than expected and a backdrop in which the Federal Reserve will have to weigh its desire to increase interest rates against decidedly weakening fundamentals. Goldman holds to a forecast that the Fed will hike in September, but futures market traders now assign just a 52 percent chance the central bank will tighten even in December, with just a 20 percent for a September move.
In the face of dwindling returns, investors could have little else but dividends to count on. Goldman forecasts that all of the 2 percent gain in total return by the end of the year will come from dividends, which are expected to account for 46 percent of market returns for the next 10 years. By contrast, prices have accounted for 80 percent of total return during the current bull market, which has seen the S&P 500 surge about 220 percent since the March 2009 low.
"The median S&P 500 (INDEX: .SPX) stock is expected to grow its dividend by 8 percent annually during the next two years," Kostin said. "However, with record levels of cash on corporate balance sheets, many firms are increasing dividends at a much faster clip."
Goldman projects market returns over the next 10 years will be 5 percent annualized and recommends investors focus on dividend growth stocks. Some of the firm's top stocks it holds in a basket of such companies include Ford Motor (NYSE: F), Coca-Cola (NYSE: KO), Pfizer (NYSE: PFE), Lockheed Martin (NYSE: LMT) and Verizon (NYSE: VZ).
In addition to weak growth and the prospect of a Fed hike, the market will be constrained by basic valuations. The average stock in the S&P 500 is trading at a price-to-earnings multiple of 18.2, which puts it in the 99th percentile historically, according to Goldman.
That valuation alone gives the index "limited scope for further upward expansion," Kostin wrote.
Consequently, companies will have to step in to reward investors with cash.
Goldman projects companies in 2015 to return $1 trillion in the form of buybacks and dividends. Dividends are expected to expand 7 percent to $400 billion while buybacks would grow 18 percent to account for the remaining $600 billion.
The dividend play has been a rough one so far, with global dividends down 6.3 percent in the first quarter to $218 billion, according to Henderson Global Dividend Study. However, Henderson points out that dollar appreciation has cut into the dividend count to the tune of $15.9 billion.
Moreover, U.S. companies have more than done their part, adding a record $99.4 billion for the quarter, a 14.8 percent increase. All industries except for insurance increased their payments.
"This is the fifth consecutive quarter of double digit increases, cementing the US as the engine of global dividend growth," Henderson said in a report for clients.
More From CNBC