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5 Dividend Growth Stocks Poised for Outperformance

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Dividend investing remains a popular strategy for investors even in the face of rising yields. Though it does not offer dramatic price appreciation, the strategy is a major source of consistent income for investors in any type of market.

While there are several dividend stocks that could provide capital appreciation, honing in on stocks with a history of dividend growth leads to a healthy portfolio, with a greater scope of capital appreciation as opposed to simple dividend-paying stocks or those with high yields.

Dividend Growth: A Winning 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.

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.

Just these few criteria narrowed down the universe from over 7,700 stocks to just 19.

Here are five of the 19 stocks that fit the bill:

Irvine-based Skyworks Solutions Inc. (SWKS - Free Report) designs, manufactures and markets a broad range of high-performance analog and mixed signal semiconductors that enable wireless connectivity. The company saw positive earnings estimate revision of $2.73 over the past 30 days for the fiscal year (ending September 2021) and has estimated earnings growth of 67.5%. The stock has a Zacks Rank #1 and Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ohio-based ParkerHannifin Corporation (PH - Free Report) is a global diversified manufacturer of motion & control technologies and systems. The stock saw solid earnings estimate revision of $1.53 over the past 30 days for the fiscal year (ending June 2021) and has an estimated earnings growth rate of 29.5%. It has a Zacks Rank #2 and Growth Score of B.

Pennsylvania-based Toll Brothers Inc. (TOL - Free Report) builds single-family detached and attached home communities, master-planned luxury residential resort-style golf communities, and urban low, mid, and high-rise communities, principally on the land it develops and improves. The company saw solid earnings estimate revision of 38 cents over the past 30 days for the fiscal year (ending October 2021), with an expected earnings growth rate of 45.9%. The stock has a Zacks Rank #2 and Growth Score of A.

Illinois-based Abbott Laboratories (ABT - Free Report) discovers, develops, manufactures and sells a diversified line of health care products. The company saw solid earnings estimate revision of 34 cents over the last 30 days for this year and has an expected earnings growth rate of 38.9%. The stock has a Zacks Rank #2 and Growth Score of B.

Tennessee-based FedEx Corporation (FDX - Free Report) is a global transportation and logistics enterprise that offers customers a one-stop source for global shipping, logistics and supply chain solutions. The company has an estimated earnings growth rate of 81.5% for the fiscal year (ending May 2021) and delivered an average positive earnings surprise of 46.17% in the past four quarters. It 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.

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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.