Dividend investing has been in vogue since the start of the year given the instability in the market and global growth concerns. In fact, investors are chasing dividend growth when fears of dividend cuts are high amid macro uncertainties.
Importance of Dividend Growth
A stock with a history of increasing dividends year over year is considered healthy and latent with higher capital appreciation opportunity irrespective of the stock market direction. Stocks with solid dividend growth generally act as a hedge against economic uncertainty and offers downside protection with its consistent increase in payouts.
Although these stocks do not necessarily have the highest yields, they are proven outperformers over the long term.
Hence, for finding stocks with a solid dividend growth history, we have focused on 5-Year Historical Dividend Growth of more than zero. The combination of this metric with other exciting parameters could result in a winning portfolio:
Other Parameters
Most Recent Payout Ratio less than M-Industry: This is the measure of dividend payments as a percentage of earnings. A relatively low payout ratio indicates the company's ability to increase dividend in the future even in tough times.
Next 3-5 Year EPS Growth Rate Over 10%: This represents the rate at which a company's earnings are expected to grow. An improving earnings should help the companies keep paying dividends.
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 a better cash flow generated by the company.
52-Week Price Change greater than S&P 500 (Median): This ensures that the stock appreciated more than the S&P 500 over the past one year.
Zacks Rank less than 3: Stocks having a Zacks Rank #1 (Strong Buy) and 2 (Buy) generally outperform than their peers in any type of market environment.
Growth Style Score of B or better: This further evaluates the company's growth prospects through the analysis of its income statement, balance sheet and cash flow statement. Stocks with a Growth Score of 'A' or 'B' are deemed the strongest when combined with Zacks Rank #1 (Strong Buy) or 2 (Buy).
Market Capitalization greater than $2 billion: We have eliminated small caps stocks to ensure better flexibility and tradability.
Here are five of the nine stocks that fit the bill:
Royal Caribbean Cruises Ltd. ( RCL )
Lear Corp. ( LEA )
Broadcom Limited ( AVGO )
Huntington Ingalls Industries Inc. ( HII )
The Cheesecake Factory Incorporated ( CAKE )
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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:http://www.zacks.com/performance.
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LEAR CORPORATN (LEA): Free Stock Analysis Report
BROADCOM LTD (AVGO): Free Stock Analysis Report
ROYAL CARIBBEAN (RCL): Free Stock Analysis Report
CHEESECAKE FACT (CAKE): Free Stock Analysis Report
HUNTINGTON INGL (HII): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
