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Forget Market Volatility With These Dividend Growth Stocks
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The appeal for dividend investing has been on the rise amid market volatility and a low-rate environment. Though the strategy doesn’t offer dramatic price appreciation, it is a major source of consistent income in the form of an increase in payout in any type of market.
Zeroing in on companies that not only offer dividends but also consistently increase their payouts seems like a good idea. This is because stocks that have a strong history of dividend growth as opposed to those that offer high yields form a healthy portfolio with more scope for capital appreciation.
Inside the Dividend Growth Strategy
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.
Furthermore, these have a long history of outperformance over the long term unlike the broader stock market or any other dividend-paying stock. However, it does not necessarily mean that they have the highest yields.
As a result, picking dividend growth stocks appears as a winning strategy 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.
Just these few criteria narrowed down the universe from over 7,700 stocks to 14.
Here are five of the 14 stocks that fit the bill:
Pennsylvania-based Dick's Sporting Goods Inc. (DKS - Free Report) operates as a major omni-channel sporting goods retailer, offering athletic shoes, apparel, accessories and a broad selection of outdoor and athletic equipment for team sports, fitness, camping, fishing, tennis, golf, water sports, etc. The company has an estimated earnings growth rate of 3% for the fiscal year (ending January 2021) and delivered an average positive earnings surprise of 15.48% for the past four quarters. It has a Zacks Rank #1 and Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
California-based Activision Blizzard Inc. is a leading developer and publisher of console, online and mobile games. The stock saw positive earnings estimate revision of 5 cents over the past 30 days for this year and has estimated earnings growth of 44.4%. It has a Zacks Rank #2 and Growth Score of B.
Massachusetts-based Thermo Fisher Scientific Inc. (TMO - Free Report) is a scientific instrument maker and a world leader in serving science. It has seen a positive earnings estimate revision of 21 cents for this year over the past month and has an expected earnings growth rate of 29.5%. Thermo Fisher has a Zacks Rank #2 and Growth Score of B.
Illinois-based Fortune Brands Home Security Inc. specializes in designing, manufacturing and selling home and security products, primarily used in kitchen and bath cabinetry, plumbing and accessories, entry door systems, and security products applications. The company saw solid earnings estimate revision of 3 cents over the past 30 days for this year and has an estimated earnings growth rate of 6.9%. The stock has a Zacks Rank #2 and Growth Score of B.
Taiwan-based Taiwan Semiconductor Manufacturing Company Ltd. (TSM - Free Report) is the world's largest dedicated integrated circuit foundry. The company has seen solid earnings estimate revision of 34 cents over the past 30 days for this year and has an estimated earnings growth of 61.9%. The stock has a Zacks Rank #2 and Growth Score of B.
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.
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Forget Market Volatility With These Dividend Growth Stocks
The appeal for dividend investing has been on the rise amid market volatility and a low-rate environment. Though the strategy doesn’t offer dramatic price appreciation, it is a major source of consistent income in the form of an increase in payout in any type of market.
Zeroing in on companies that not only offer dividends but also consistently increase their payouts seems like a good idea. This is because stocks that have a strong history of dividend growth as opposed to those that offer high yields form a healthy portfolio with more scope for capital appreciation.
Inside the Dividend Growth Strategy
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.
Furthermore, these have a long history of outperformance over the long term unlike the broader stock market or any other dividend-paying stock. However, it does not necessarily mean that they have the highest yields.
As a result, picking dividend growth stocks appears as a winning strategy 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.
Just these few criteria narrowed down the universe from over 7,700 stocks to 14.
Here are five of the 14 stocks that fit the bill:
Pennsylvania-based Dick's Sporting Goods Inc. (DKS - Free Report) operates as a major omni-channel sporting goods retailer, offering athletic shoes, apparel, accessories and a broad selection of outdoor and athletic equipment for team sports, fitness, camping, fishing, tennis, golf, water sports, etc. The company has an estimated earnings growth rate of 3% for the fiscal year (ending January 2021) and delivered an average positive earnings surprise of 15.48% for the past four quarters. It has a Zacks Rank #1 and Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
California-based Activision Blizzard Inc. is a leading developer and publisher of console, online and mobile games. The stock saw positive earnings estimate revision of 5 cents over the past 30 days for this year and has estimated earnings growth of 44.4%. It has a Zacks Rank #2 and Growth Score of B.
Massachusetts-based Thermo Fisher Scientific Inc. (TMO - Free Report) is a scientific instrument maker and a world leader in serving science. It has seen a positive earnings estimate revision of 21 cents for this year over the past month and has an expected earnings growth rate of 29.5%. Thermo Fisher has a Zacks Rank #2 and Growth Score of B.
Illinois-based Fortune Brands Home Security Inc. specializes in designing, manufacturing and selling home and security products, primarily used in kitchen and bath cabinetry, plumbing and accessories, entry door systems, and security products applications. The company saw solid earnings estimate revision of 3 cents over the past 30 days for this year and has an estimated earnings growth rate of 6.9%. The stock has a Zacks Rank #2 and Growth Score of B.
Taiwan-based Taiwan Semiconductor Manufacturing Company Ltd. (TSM - Free Report) is the world's largest dedicated integrated circuit foundry. The company has seen solid earnings estimate revision of 34 cents over the past 30 days for this year and has an estimated earnings growth of 61.9%. The stock has a Zacks Rank #2 and Growth Score of B.
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.