Thanksgiving is coming up and it's time to stuff dividend stocks with strong growth prospects in your portfolio for market-beating returns. This is especially true as stocks with a history of dividend growth year over year form a healthy portfolio with greater scope of capital appreciation as opposed to simple dividend paying stocks or those with high yields. Inside Dividend Growth Strategy
Stocks that have a strong history of dividend growth as opposed to those that pays high yields form a healthy portfolio with more scope for capital appreciation. This is because these stocks act as a hedge against economic or political uncertainty as well as stock market volatility. Simultaneously, these offer outsized payouts or sizable yields on a regular basis irrespective of the market direction.
Additionally, these stocks have superior fundamentals that make dividend growth a quality and promising investment for the long term. These include a sustainable business model, a long track of profitability, rising cash flows, good liquidity, a strong balance sheet and some value characteristics. Further, a history of strong dividend growth indicates that dividend increase in the future is likely. This makes the portfolio healthy and safe.
Although these stocks do not necessarily have the highest yields, they have outperformed for a longer period than the broader stock market or any other dividend-paying stock.
As a result, picking dividend growth stocks appear as winning strategies when some other parameters are also included. 5-Year Historical Dividend Growth greater than zero:
This selects stocks with a solid dividend growth history. 5-Year Historical Sales Growth greater than zero:
This represents stocks with a strong record of growing revenue. 5-Year Historical EPS Growth greater than zero:
This represents stocks with a solid earnings growth history. Next 3-5 Year EPS Growth Rate greater than zero:
This represents the rate at which a company's earnings are expected to grow. Improving earnings should help companies sustain dividend payments. Price/Cash Flow less than M-Industry:
A ratio less than M-industry indicates that the stock is undervalued in that industry and that an investor needs to pay less for better cash flow generated by the company. 52-Week Price Change greater than S&P 500 (Market Weight):
This ensures that the stock appreciated more than the S&P 500 over the past one year. Top Zacks Rank:
Stocks having a Zacks Rank #1 (Strong Buy) and 2 (Buy) generally outperform their peers in all types of market environment. Growth Style Score of B or better:
Our research shows that stocks with a Growth Score of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential. P/E Ratio Less than X-Industry:
A ratio less than X-industry indicates that the stock is cheap and undervalued in that industry.
Here are five of the 11 stocks that fit the bill: PetMed Express Inc. PETS :
This Florida-based company is America's largest pet pharmacy, delivering prescription and non-prescription pet medication, and health and nutritional supplements for dogs and cats. The company has a P/E ratio of 23.69 compared with the industry average of 36.09. Its earnings are expected to grow 42.45% this fiscal year. It has a Zacks Rank #1 and a Growth Style Score of A. You can see the complete list of today's Zacks #1 Rank stocks here
. Rockwell Collins Inc. COL :
This Iowa-based company designs, produces and supports communications and aviation systems for commercial and military customers. The company has a P/E ratio of 18.45 compared with the industry average of 21.20 and an expected earnings growth rate of 16.73% for this fiscal year. It has a Zacks Rank #2 and a Growth Style Score of B. Jones Lang LaSalle Incorporated JLL :
This Illinois-based full-service real estate firm provides management services, corporate and financial services and investment management services to corporations and other real estate owners, users and investors worldwide. It has a P/E ratio of 18.28 versus the industry average of 20.47 and an expected earnings growth rate of 1.26% for this year. The stock has a Zacks Rank #1 and a Growth Style Score of B. Microchip Technology Incorporated MCHP :
This Arizona-based company is engaged in developing, manufacturing and selling specialized semiconductor products used by customers for a wide variety of embedded control applications. Its earnings are expected to grow 36.62% this fiscal while its P/E ratio stands at 16.76 compared with the industry average of 18.88. The stock has a Zacks Rank #2 and a Growth Style Score of B. The Greenbrier Companies Inc. GBX :
This Oregon-based company is a leading supplier of transportation equipment and services to the railroad and related industries. It is expected to see earnings growth of 4.67% for this fiscal and has a P/E ratio of 11.93 versus the industry average of 16.30. Greenbrier Companies has a Zacks Rank #1 and a Growth Style Score of B.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks' portfolios and strategies are available at: https://www.zacks.com/performance .
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Greenbrier Companies, Inc. (The) (GBX): Free Stock Analysis Report PetMed Express, Inc. (PETS): Free Stock Analysis Report Rockwell Collins, Inc. (COL): Free Stock Analysis Report Jones Lang LaSalle Incorporated (JLL): Free Stock Analysis Report Microchip Technology Incorporated (MCHP): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research