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The ultra-low rates and the COVID-19 pandemic have sent investors chasing after dividend stocks this year. Though the strategy doesn’t offer any dramatic price appreciation, it is a major source of consistent income for investors in any type of market.
Honing in on stocks with a history of dividend growth leads to a healthy portfolio, with greater scope of capital appreciation, as opposed to simple dividend-paying stocks or those with high yields.
Why Dividend Growth Investing Is Better?
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.
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 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 revenues.
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 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 just seven.
Here are five of the seven stocks that fit the bill:
Florida-based Lennar Corporation (LEN - Free Report) is engaged in homebuilding and financial services in the United States. The company has seen solid earnings estimate revision of 60 cents over the past month for the fiscal year (ending November 2021) and has an expected earnings growth rate of 8.3%. Lennar carries a Zacks Rank #1 and has a Growth Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.
Washington-based Microsoft Corporation (MSFT - Free Report) is one of the largest broad-based technology providers in the world. The company delivered an average positive earnings surprise of 12.35% in the past four quarters and has an expected earnings growth rate of 16.8% for the fiscal year (ending June 2021). The stock has a Zacks Rank #2 and Growth Score of B.
Illinois-based Deere & Company (DE - Free Report) is the world’s largest producer of agricultural equipment, manufacturing agricultural machinery since 1837 under the iconic John Deere brand with its signature green and yellow color scheme. The stock saw solid earnings estimate revision of a $1.95 over the past 30 days for the fiscal year (ending October 2021) and has an estimated earnings growth rate of 47.1%. It sports a Zacks Rank #1 and has a Growth Score of B.
Colorado-based TeleTech Holdings Inc. (TTEC - Free Report) is a customer experience, technology and services company that focuses on the design, implementation and delivery of customer experiences. The company has an estimated earnings growth rate of 58.7% for this year and has delivered an average positive earnings surprise of 51.79% in the past four quarters. The stock has a Zacks Rank #1 and a Growth Score of A.
California-based KLA Corporation (KLAC - Free Report) is an original equipment manufacturer of process diagnostics and control (“PDC”) equipment and yield management solutions required for the fabrication of semiconductor integrated circuits or chips. It saw positive earnings estimate revision of seven cents over the past 30 days for the fiscal year (ending June 2021) and has an estimated earnings growth rate of 21.5%. KLA Corporation has a Zacks Rank #2 and 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.
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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5 Top-Ranked Dividend Growth Stocks for 2021
The ultra-low rates and the COVID-19 pandemic have sent investors chasing after dividend stocks this year. Though the strategy doesn’t offer any dramatic price appreciation, it is a major source of consistent income for investors in any type of market.
Honing in on stocks with a history of dividend growth leads to a healthy portfolio, with greater scope of capital appreciation, as opposed to simple dividend-paying stocks or those with high yields.
Why Dividend Growth Investing Is Better?
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.
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 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 revenues.
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 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 just seven.
Here are five of the seven stocks that fit the bill:
Florida-based Lennar Corporation (LEN - Free Report) is engaged in homebuilding and financial services in the United States. The company has seen solid earnings estimate revision of 60 cents over the past month for the fiscal year (ending November 2021) and has an expected earnings growth rate of 8.3%. Lennar carries a Zacks Rank #1 and has a Growth Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.
Washington-based Microsoft Corporation (MSFT - Free Report) is one of the largest broad-based technology providers in the world. The company delivered an average positive earnings surprise of 12.35% in the past four quarters and has an expected earnings growth rate of 16.8% for the fiscal year (ending June 2021). The stock has a Zacks Rank #2 and Growth Score of B.
Illinois-based Deere & Company (DE - Free Report) is the world’s largest producer of agricultural equipment, manufacturing agricultural machinery since 1837 under the iconic John Deere brand with its signature green and yellow color scheme. The stock saw solid earnings estimate revision of a $1.95 over the past 30 days for the fiscal year (ending October 2021) and has an estimated earnings growth rate of 47.1%. It sports a Zacks Rank #1 and has a Growth Score of B.
Colorado-based TeleTech Holdings Inc. (TTEC - Free Report) is a customer experience, technology and services company that focuses on the design, implementation and delivery of customer experiences. The company has an estimated earnings growth rate of 58.7% for this year and has delivered an average positive earnings surprise of 51.79% in the past four quarters. The stock has a Zacks Rank #1 and a Growth Score of A.
California-based KLA Corporation (KLAC - Free Report) is an original equipment manufacturer of process diagnostics and control (“PDC”) equipment and yield management solutions required for the fabrication of semiconductor integrated circuits or chips. It saw positive earnings estimate revision of seven cents over the past 30 days for the fiscal year (ending June 2021) and has an estimated earnings growth rate of 21.5%. KLA Corporation has a Zacks Rank #2 and 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.
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.