Goldman: S&P 500 companies will spend $2.2 trillion in 2016

Goldman Sachs's chief U.S. equity strategist David Kostin and his team of analysts project that 54% of total spending amount will go into development activities such as capital expenditure, research and development, and mergers and acquisitions - up 3% compared to 2015.

46% are expected to be spent returning cash to shareholders in different forms. That is 7% higher compared to 2015.

Here's where the cash will flow according to Goldman:

1. Mergers and acquisitions

Next year, Goldman expects cash M&A spending to compile $300 billion, that's higher 8%, but still lower than previous growth rates.

"The pace of growth in S&P 500 cash M&A spending will decelerate in 2016 relative to the 50 percent surge experienced in 2015. Although two months of the year still remain, cash M&A has totaled $191 billion year-to-date, higher than the 2014 full-year total of $185 billion. Healthcare accounted for almost 50 percent of cash deal activity this year. We expect cash M&A during the second half will decelerate considerably relative to activity in the first half," Kostin and team say.

2. Research and development & Capital expenditure

Goldman expects $650 billion spending in capex and $256 billion in R&D spending, reflecting expansion of 1% and 5% respectively. The energy sector accounts for 30% of S&P 500 capex, which means capital spending is much impacted by lingering weakness in oil prices.

"Our forecast of a roughly $50 per barrel Brent crude price in 2016 and recently slashed spending budgets by both Chevron and Exxon suggest a further decline of 20 percent in energy capex during 2016," the team says in the note.

However, R&D is a different thing, as energy only accounts for 2% of total S&P 500 spending on research and development.

3. Buybacks

Firms will spend $608 billion on buybacks next year - even despite increasing valuations, Goldman says.

"Following 9 percent growth in 2014 and an estimated 10 percent growth in 2015, we expect S&P 500 gross buybacks will rise by another 7 percent to $608 billion in 2016."

"More than 80 percent of S&P 500 firms engage in share repurchases, roughly double the number of firms buying back stock 20 years ago."

4. Dividends for everyone

Goldman projects that dividends will rise 7% to $432 billion. Technology firms and financials will be leaders here.

"Consensus forecasts imply that the financials sector will grow dividends by 10 percent in 2016, the highest growth rate of any sector, while energy dividends are expected to come under pressure," the analysts said adding that sluggish global growth has pressured long-term divident prospects.

Although the banking institution has opposed bulky buybacks, the strategists recommend investors purchase firms that have high total cash returns relative to those investing in growth, as markets usually reward the former group.