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5 Dividend Stocks With Growth Potential to Bet On

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Volatility and uncertainty in the stock market have raised the appeal of dividend growth stocks. Trump’s massive tax cut is also attracting investors to these stocks. This is because lower corporate taxes would boost companies’ profitability leading to fatty dividends and in turn lead to outperformance of stocks that have a history of year-over-year dividend growth.

Why Dividend Growth?

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.

Moreover, a history of dividend growth year over year leads to a healthy portfolio with a greater scope of capital appreciation as opposed to simple dividend paying stocks or those with high yields. 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.

Here are five of the 16 stocks that fit the bill:

California-based Avery Dennison Corporation (AVY - Free Report) is a global leader in pressure-sensitive label and functional materials and labeling solutions for apparels. The company has seen solid earnings estimate revision of 9 cents over the past 30 days for this year and has an expected earnings growth rate of 17.60%. The stock has a Zacks Rank #1 and a Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ohio-based Owens Corning Inc. (OC - Free Report) is a world leader in building materials systems and composite solutions. The company saw solid earnings estimate revision of 30 cents over the past 30 days for this year and has an expected earnings growth rate of 29.77%. Owens Corning has a Zacks Rank #2 and a Growth Score of A.

Oregon-based Columbia Sportswear Company (COLM - Free Report) is a global leader in design, sourcing, marketing and distribution of active outdoor apparel and footwear, with operations in North America, Europe and Asia. It has seen positive earnings estimate revision of 3 cents for this year over the past month, and delivered an average positive earnings surprise of 16.53% in the past four quarters. The stock has a Zacks Rank #2 and a Growth Score of A.

California-based Intel (INTC - Free Report) is one of the world's largest semiconductor chip maker. It has delivered an average positive earnings surprise of 14.81% in the past four quarters and expects its earnings to grow 1.45% this year. It has a Zacks Rank #2 and a Growth Score of B.

Louisiana-based H&E Equipment Services Inc. (HEES - Free Report) is one of the largest integrated equipment services companies in the United States with full-service facilities throughout the Intermountain, Southwest, Gulf Coast & Southeast regions of the United States. It has seen positive earnings estimate revision of 26 cents for this year over the past month and has delivered an average positive earnings surprise of 51.32% in the past four quarters. The stock has a Zacks Rank #2 and a 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.

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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: https://www.zacks.com/performance.

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