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5 Stocks Backed by Dividend Growth for Solid Returns
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When the markets are choppy with rampant global growth concerns, investors generally look for both income and growth in their portfolios. This can easily be achieved by honing in on stocks that not only pay dividends but also consistently increase their payout.
Dividend Growth: A Better Strategy
Dividend growth stocks form a healthy portfolio with more scope for capital appreciation as opposed to those that pays high yields. This is because stocks that have a history of enhancing shareholder returns through consistent dividend hikes immunize an investor’s portfolio from large swings in stock prices during turbulent times.
Simultaneously, these offer outsized payouts or sizable yields on a regular basis irrespective of the market direction. These stocks are often backed by a sustainable business model, a long track of profitability, rising cash flows, good liquidity, a strong balance sheet and some value characteristics. All these superior fundamentals make dividend growth a quality and promising investment for the long term.
However, the long history of outperformance by dividend growth stocks compared to the broad stock market or any other dividend paying stock does not necessarily mean that they have the highest yields.
Here are the screening parameters that could result in a winning dividend growth portfolio:
5-Year Historical Dividend Growth greater than zero: This selects stocks with a solid dividend growth history.
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.
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 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), 2 (Buy) and 3 (Hold) generally perform better than their peers in all types of market environment.
VGM Style Score of B or better:This is simply a weighted combination of Value, Growth and Momentum. This when combined with a Zacks Rank #1 or #2 offers the best upside potential.
Market Capitalization greater than $2 billion: We have eliminated small caps stocks to ensure better flexibility and tradability.
Here are five of the eight stocks that fit the bill:
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
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5 Stocks Backed by Dividend Growth for Solid Returns
When the markets are choppy with rampant global growth concerns, investors generally look for both income and growth in their portfolios. This can easily be achieved by honing in on stocks that not only pay dividends but also consistently increase their payout.
Dividend Growth: A Better Strategy
Dividend growth stocks form a healthy portfolio with more scope for capital appreciation as opposed to those that pays high yields. This is because stocks that have a history of enhancing shareholder returns through consistent dividend hikes immunize an investor’s portfolio from large swings in stock prices during turbulent times.
Simultaneously, these offer outsized payouts or sizable yields on a regular basis irrespective of the market direction. These stocks are often backed by a sustainable business model, a long track of profitability, rising cash flows, good liquidity, a strong balance sheet and some value characteristics. All these superior fundamentals make dividend growth a quality and promising investment for the long term.
However, the long history of outperformance by dividend growth stocks compared to the broad stock market or any other dividend paying stock does not necessarily mean that they have the highest yields.
Here are the screening parameters that could result in a winning dividend growth portfolio:
5-Year Historical Dividend Growth greater than zero: This selects stocks with a solid dividend growth history.
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.
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 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), 2 (Buy) and 3 (Hold) generally perform better than their peers in all types of market environment.
VGM Style Score of B or better:This is simply a weighted combination of Value, Growth and Momentum. This when combined with a Zacks Rank #1 or #2 offers the best upside potential.
Market Capitalization greater than $2 billion: We have eliminated small caps stocks to ensure better flexibility and tradability.
Here are five of the eight stocks that fit the bill:
Tyson Foods Inc. (TSN - Free Report)
The Travelers Companies Inc. (TRV - Free Report)
Southwest Gas Corporation (SWX - Free Report)
Lexington Realty Trust (LXP - Free Report)
Unum Group (UNM - Free Report)
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.
Click here to sign up for a free trial to the Research Wizard today.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »