Dividend investing remains a popular strategy for investors. Though the strategy doesn’t offer dramatic price appreciation, it is a major source of consistent income for investors in any type of market. In particular, focusing on the growth level in this strategy leads to higher returns.
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 is Dividend Growth 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. 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 15. Here are five of the 15 stocks that fit the bill: Tennessee-based FedEx Corporation ( is a global transportation and logistics enterprise that offers customers a one-stop source for global shipping, logistics and supply chain solutions. The stock saw solid earnings estimate revision of 22 cents over the past 30 days for fiscal year (ending May 2021) with an expected earnings growth rate of 81.5%. It has a Zacks Rank #1 and a Growth Score of A. You can see FDX Quick Quote FDX - Free Report) . the complete list of today’s Zacks #1 Rank stocks here California-based Broadcom Inc. (is a premier designer, developer and global supplier of a broad range of semiconductor devices with a focus on complex digital and mixed signal complementary metal oxide semiconductor based devices and analog III-V based products. The stock saw a solid earnings estimate revision of 5 cents for fiscal year (ending October 2021) over the past 30 days and has an expected earnings growth rate of 18.6%. The stock has a Zacks Rank #2 and Growth Score of B. AVGO Quick Quote AVGO - Free Report) Indiana-based Cummins Inc. ( is a leading global designer, manufacturer and distributor of diesel and natural gas engines, and powertrain-related component products. It has seen solid earnings estimate revision of 22 cents for this year over the past three months, and has an estimated earnings growth rate of 20.3%. The stock has a Zacks Rank #2 and Growth Score of B. CMI Quick Quote CMI - Free Report) Georgia-based AGCO Corporation ( is a leading manufacturer and distributor of agricultural equipment and related replacement parts. It 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 21.6%. The stock has a Zacks Rank #1 and Growth Score of B. AGCO Quick Quote AGCO - Free Report) 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 has delivered an average positive earnings surprise of 51.8% in the past four quarters. The stock has a Zacks Rank #2 and Growth Score of A. TTEC Quick Quote TTEC - 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.
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