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The hunt for dividend in the equity market is always steady irrespective of how the market is behaving. After all, who doesn’t like a steady stream of current income along with capital gains?
But investors should note that not all dividend stocks will give them the same protection or serve the same purpose. Yes, stable, mature and profitable companies are normally known as dividend destinations. These companies are usually good for value investing and are in demand when volatility flares up.
Still, investors should note that companies consistently raising dividend appear safer options over the long term than companies offering higher payouts.
Inside Dividend Growth Story
Notably, stocks with dividend growth point to quality investing – a pre-requisite to making money in this volatile environment. These companies are usually strong, which allows them to increase dividend constantly. Even if the broader market nosedives, these companies are likely to stay afloat.
Plus, if the Fed hikes interest rates, safer investing options such as government bonds are likely to start yielding higher. This in turn will mar the appeal for high-yielding stocks. But the Fed’s policy tightening is less threatening to stocks with consistent dividend growth.
Also, in most cases high-yielding stocks are not safe. These even may cut down their payout in an ensuing period, if the operating environment turns sour.
The Winning Strategy
In order to shortlist stocks that are exhibiting a dividend growth trend, we chose the following as our primary screening parameters.
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 payment as a percentage of earnings. A relatively low payout ratio indicates the company’s ability to increase dividend even during tough times.
5-Year Historical Sales Growth greater than zero: This selects stocks with a strong record of revenue growth.
5-Year Historical EPS Growth greater than zero: This parameter shortlists 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.
In addition, we place a few other criteria that lead us to some likely outperformers.
Zacks Rank Less than or Equal to 2: Stocks having a Zacks Rank #1 (Strong Buy) or 2 (Buy) 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.
Market Capitalization greater than $2 billion: We have eliminated small-cap stocks to ensure better flexibility and tradability.
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 and helps us to pick some market-beating stocks.
A handful of criteria has narrowed down the universe from over 7,700 stocks to four.
Here are the four stocks:
Tyson Foods Inc. (TSN - Free Report) : This is a producer, processor and seller of chicken and poultry-based food products. It has a Zacks Rank #1 and a VGM score of A.
EnerSys (ENS - Free Report) : The company is into the stored energy solutions for industrial applications. It has a Zacks Rank #2 and a VGM score of A.
EMCOR Group Inc. (EME - Free Report) : The company is into the designing, operating and maintaining of mechanical and electrical systems. It also has a Zacks Rank #2 and a VGM score of A.
Convergys Corporation : It is into the provision of outsourced, integrated billing and customer care services, with a Zacks Rank #2 and a VGM score of A.
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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4 Dividend Growth Stocks for Quality Investing
The hunt for dividend in the equity market is always steady irrespective of how the market is behaving. After all, who doesn’t like a steady stream of current income along with capital gains?
But investors should note that not all dividend stocks will give them the same protection or serve the same purpose. Yes, stable, mature and profitable companies are normally known as dividend destinations. These companies are usually good for value investing and are in demand when volatility flares up.
Still, investors should note that companies consistently raising dividend appear safer options over the long term than companies offering higher payouts.
Inside Dividend Growth Story
Notably, stocks with dividend growth point to quality investing – a pre-requisite to making money in this volatile environment. These companies are usually strong, which allows them to increase dividend constantly. Even if the broader market nosedives, these companies are likely to stay afloat.
Plus, if the Fed hikes interest rates, safer investing options such as government bonds are likely to start yielding higher. This in turn will mar the appeal for high-yielding stocks. But the Fed’s policy tightening is less threatening to stocks with consistent dividend growth.
Also, in most cases high-yielding stocks are not safe. These even may cut down their payout in an ensuing period, if the operating environment turns sour.
The Winning Strategy
In order to shortlist stocks that are exhibiting a dividend growth trend, we chose the following as our primary screening parameters.
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 payment as a percentage of earnings. A relatively low payout ratio indicates the company’s ability to increase dividend even during tough times.
5-Year Historical Sales Growth greater than zero: This selects stocks with a strong record of revenue growth.
5-Year Historical EPS Growth greater than zero: This parameter shortlists 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.
In addition, we place a few other criteria that lead us to some likely outperformers.
Zacks Rank Less than or Equal to 2: Stocks having a Zacks Rank #1 (Strong Buy) or 2 (Buy) 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.
Market Capitalization greater than $2 billion: We have eliminated small-cap stocks to ensure better flexibility and tradability.
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 and helps us to pick some market-beating stocks.
A handful of criteria has narrowed down the universe from over 7,700 stocks to four.
Here are the four stocks:
Tyson Foods Inc. (TSN - Free Report) : This is a producer, processor and seller of chicken and poultry-based food products. It has a Zacks Rank #1 and a VGM score of A.
EnerSys (ENS - Free Report) : The company is into the stored energy solutions for industrial applications. It has a Zacks Rank #2 and a VGM score of A.
EMCOR Group Inc. (EME - Free Report) : The company is into the designing, operating and maintaining of mechanical and electrical systems. It also has a Zacks Rank #2 and a VGM score of A.
Convergys Corporation : It is into the provision of outsourced, integrated billing and customer care services, with a Zacks Rank #2 and a VGM score of A.
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: http://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 »