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Investors have turned cautious given that the stock market has a long history of weak performance during the summer months (May to October) per the old adage “Sell in May and Go Away”. Amid such a scenario, falling back on the dividend growth strategy seems the best practice. This is because investors can enjoy rising current income while awaiting capital appreciation irrespective of market conditions.
Dividend Growth Strategy
Stocks that have a strong history of dividend growth generally act as a hedge against economic or political uncertainty as these belong to mature companies, which are less susceptible to large swings in the market while simultaneously offer downside protection with their consistent increase in payouts.
These stocks have superior fundamentals as opposed to their traditional dividend counterparts such as a sustainable business model, a long track record of profitability, rising cash flows, good liquidity, strong balance sheet and some value characteristics. They have a history of outperformance over the long term but not necessarily high dividend yields. All these makes dividend growth a quality and promising investment metric for the long term.
Further, a history of strong dividend growth indicates that a future dividend increase is likely. This makes the portfolio healthy and safe.
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.
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.
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.
Here are five of the 23 stocks that fit the bill:
GATX Corporation (GATX - Free Report) : This Illinois-based company is the leading global railcar lessor specializing in railcar and locomotive operating leasing, aircraft operating leasing, information technology leasing, and venture finance for customers in diverse industrial sectors worldwide. It saw solid earnings estimate revision of nine cents for this year over the past three months, and delivered an average positive earnings surprise of 32.81% in the past four quarters. It has a Zacks Rank #2 and a VGM Style Score of B.
Lazard Ltd. (LAZ - Free Report) : This Bermuda-based company is a preeminent international financial advisory and asset management firm that has long specialized in crafting solutions to the complex financial and strategic challenges of their clients. The company has seen solid earnings estimate revision of 20 cents over the past 90 days for this year and has an expected earnings growth rate of 8.33%. It has a Zacks Rank #2 and a VGM Style Score of B.
PetMed Express Inc. (PETS - Free Report) : This Florida-based company is America's largest pet pharmacy, delivering prescription and non-prescription pet medications and health and nutritional supplements for dogs and cats. The stock has seen positive earnings estimate revision of 13 cents over the past 90 days for this year with an expected earnings growth rate of 5.41%. The stock has a VGM Style Score of B and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
MKS Instruments, Inc. (MKSI - Free Report) : This Massachusetts-based company is a leading worldwide developer, manufacturer and supplier of instruments, components and subsystems used to measure, control and analyze gases in semiconductor manufacturing and similar industrial manufacturing processes. The company has seen strong earnings estimate revision of $1.00 over the past 90 days for this year and has an expected earnings growth rate of 63.83%. It has a Zacks Rank #1 and a VGM Style Score of B.
Lear Corporation (LEA - Free Report) : This Michigan-based company is a global leader in designing, developing, engineering, manufacturing, assembling and supplying automotive seating, electrical distribution systems and related components primarily to automotive original equipment manufacturers worldwide. For this year, the company has seen a whopping earnings estimate revision of 77 cents over the past 90 days and has an expected earnings growth rate of 5.53%. It has a Zacks Rank #2 and a VGM Style 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.
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 Dividend Growth Stocks for Guaranteed Returns
Investors have turned cautious given that the stock market has a long history of weak performance during the summer months (May to October) per the old adage “Sell in May and Go Away”. Amid such a scenario, falling back on the dividend growth strategy seems the best practice. This is because investors can enjoy rising current income while awaiting capital appreciation irrespective of market conditions.
Dividend Growth Strategy
Stocks that have a strong history of dividend growth generally act as a hedge against economic or political uncertainty as these belong to mature companies, which are less susceptible to large swings in the market while simultaneously offer downside protection with their consistent increase in payouts.
These stocks have superior fundamentals as opposed to their traditional dividend counterparts such as a sustainable business model, a long track record of profitability, rising cash flows, good liquidity, strong balance sheet and some value characteristics. They have a history of outperformance over the long term but not necessarily high dividend yields. All these makes dividend growth a quality and promising investment metric for the long term.
Further, a history of strong dividend growth indicates that a future dividend increase is likely. This makes the portfolio healthy and safe.
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.
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.
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.
Here are five of the 23 stocks that fit the bill:
GATX Corporation (GATX - Free Report) : This Illinois-based company is the leading global railcar lessor specializing in railcar and locomotive operating leasing, aircraft operating leasing, information technology leasing, and venture finance for customers in diverse industrial sectors worldwide. It saw solid earnings estimate revision of nine cents for this year over the past three months, and delivered an average positive earnings surprise of 32.81% in the past four quarters. It has a Zacks Rank #2 and a VGM Style Score of B.
Lazard Ltd. (LAZ - Free Report) : This Bermuda-based company is a preeminent international financial advisory and asset management firm that has long specialized in crafting solutions to the complex financial and strategic challenges of their clients. The company has seen solid earnings estimate revision of 20 cents over the past 90 days for this year and has an expected earnings growth rate of 8.33%. It has a Zacks Rank #2 and a VGM Style Score of B.
PetMed Express Inc. (PETS - Free Report) : This Florida-based company is America's largest pet pharmacy, delivering prescription and non-prescription pet medications and health and nutritional supplements for dogs and cats. The stock has seen positive earnings estimate revision of 13 cents over the past 90 days for this year with an expected earnings growth rate of 5.41%. The stock has a VGM Style Score of B and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
MKS Instruments, Inc. (MKSI - Free Report) : This Massachusetts-based company is a leading worldwide developer, manufacturer and supplier of instruments, components and subsystems used to measure, control and analyze gases in semiconductor manufacturing and similar industrial manufacturing processes. The company has seen strong earnings estimate revision of $1.00 over the past 90 days for this year and has an expected earnings growth rate of 63.83%. It has a Zacks Rank #1 and a VGM Style Score of B.
Lear Corporation (LEA - Free Report) : This Michigan-based company is a global leader in designing, developing, engineering, manufacturing, assembling and supplying automotive seating, electrical distribution systems and related components primarily to automotive original equipment manufacturers worldwide. For this year, the company has seen a whopping earnings estimate revision of 77 cents over the past 90 days and has an expected earnings growth rate of 5.53%. It has a Zacks Rank #2 and a VGM Style 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.
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 »