In the low-rate environment and amid stock market uncertainty, investors are in search of consistent income. In this regard, nothing is better than dividend investing. Though the strategy doesn’t offer dramatic price appreciation, it is a major source of consistent income for investors in any type of market.
While there are several dividend stocks, honing in on those with a history of dividend growth leads to a healthy portfolio, with greater scope of capital appreciation as opposed to simple dividend-paying stocks or those with high yields.
Dividend Growth Strategy
Stocks that have a strong history of dividend growth belong to mature companies, which are less susceptible to large swings in the market, and thus act as a hedge against economic or political uncertainty as well as stock market volatility. At the same time, these offer downside protection with their consistent increase in payouts.
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 is likely in the future.
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 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.
Just these few criteria narrowed down the universe from over 7,700 stocks to just 18.
Here are five of the 18 stocks that fit the bill:
Tennessee-based Dollar General Corporation DG is one of the largest discount retailers in the United States offering a wider selection of merchandise, including consumable items, seasonal items, home products and apparel. The company saw solid earnings estimate revision of 9 cents over the past 30 days for the fiscal year (ending January 2021) and has an estimated earnings growth rate of 31.35%. The stock has a Zacks Rank #1 and Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
California-based SYNNEX Corporation SNX is a leading business process services company providing business-to-business services to customers and business partners. The company has seen upward earnings estimate revision of $4.36 over the past 30 days for the fiscal year (ending November 2020) and delivered average earnings surprise of 74.01% in the past four quarters. The stock carries a Zacks Rank #2 and has a Growth Score of A.
California-based ResMed Inc. RMD develops, manufactures, distributes and markets medical devices and cloud-based software solutions that diagnose, treat and manage respiratory disorders comprising sleep-disordered breathing, chronic obstructive pulmonary disease, neuromuscular disease and other chronic diseases. The company has an estimated earnings growth rate of 23.08% for this year and delivered average earnings surprise of 14.74% for the past four quarters. It has a Zacks Rank #2 and Growth Score of A.
Irvine-based Skyworks Solutions Inc. SWKS designs, manufactures and markets a broad range of high-performance analog and mixed signal semiconductors that enable wireless connectivity. The company saw positive earnings estimate revision of a penny over the past 30 days for fiscal year (ending September 2020) and delivered earnings surprise of 0.98%, on average, in the past four quarters. The stock has a Zacks Rank #2 and Growth Score of B.
Nebraska-based Werner Enterprises Inc. WERN is a transportation and logistics company primarily focused on transporting the truckload shipments such as retail store merchandise, consumer products, grocery products and manufactured product. The company has seen upward earnings estimate revision of 3 cents over the past 30 days for this year and delivered average four-quarter earnings surprise of 4.85%. The stock has a Zacks Rank #2 and Growth Score of A.
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.
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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Skyworks Solutions, Inc. (SWKS): Free Stock Analysis Report
Dollar General Corporation (DG): Free Stock Analysis Report
ResMed Inc. (RMD): Free Stock Analysis Report
SYNNEX Corporation (SNX): Free Stock Analysis Report
Werner Enterprises, Inc. (WERN): Free Stock Analysis Report
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