Dividends are a major source of consistent income for investors in any type of market though it does not offer dramatic price appreciation. While there are several dividend stocks that could provide capital appreciation, zeroing in on stocks with a history of dividend growth leads to a healthy portfolio, with greater scope for capital appreciation as opposed to simple dividend-paying stocks or those with high yields.
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 dividend growth stocks have superior fundamentals, making them quality and promising investments 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 than the broader stock market or any other dividend-paying stock over the long term. However, it does not necessarily mean that they have the highest yields. As a result, picking stocks that offer dividend growth 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 has appreciated more than the S&P 500 over the past year. Top Zacks Rank: Stocks having a Zacks Rank #1 (Strong Buy) and 2 (Buy) generally outperform their peers in all types of market environments. 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. of B or better: Growth Score Just these few criteria narrowed down the universe from over 7,700 stocks to just 12. Here are five of the 12 stocks that fit the bill: Florida-based Lennar Corporation ( is engaged in homebuilding and financial services in the United States. The company has an expected earnings growth rate of 25.4% for this year and delivered an average earnings surprise of 30.4% over the past four quarters. Lennar carries a Zacks Rank #1 and has a Growth Score of B. You can see LEN Quick Quote LEN - Free Report) . the complete list of today’s Zacks #1 Rank stocks here Colorado-based TeleTech Holdings Inc. ( is a customer experience, technology and services company that focuses on the design, implementation and delivery of customer experiences. The company saw solid earnings estimate revision of 48 cents over the past 30 days for this year and has an estimated earnings growth rate of 58.7%. The stock has a Zacks Rank #1 and a Growth Score of B. TTEC Quick Quote TTEC - Free Report) 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 3 cents over the past 30 days for this year and has an estimated earnings growth rate of 52.89%. It has a Zacks Rank #2 and Growth Score of B. ATVI Quick Quote ATVI - Free Report) Massachusetts-based Thermo Fisher Scientific Inc. ( is a scientific instrument maker and a world leader in serving science. The stock saw positive earnings estimate revision of 53 cents over the past 30 days for this year and has an estimated earnings growth rate of 50.61%. It has a Zacks Rank #2 and a Growth Score of B. TMO Quick Quote TMO - Free Report) Ohio-based ParkerHannifin Corporation (is a global diversified manufacturer of motion & control technologies and systems. The stock saw solid earnings estimate revision of $1.13 over the past 30 days for the fiscal year (ending June 2021) and has an estimated earnings growth rate of 9.64%. It has a Zacks Rank #2 and a Growth Score of B. PH Quick Quote PH - 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.
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