Dividend is 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 those with a history of dividend growth should lead to a healthy portfolio, with greater scope for 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 hike 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 26. Here are five of the 26 stocks that fit the bill: 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 seen solid earnings estimate revision of 5 cents over the past month for this year and has delivered an average earnings surprise of 69.98% in the past four quarters. The stock has a Zacks Rank #1 and Growth Score of A. You can see TTEC Quick Quote TTEC - Free Report) . the complete list of today’s Zacks #1 Rank stocks here New York-based The Goldman Sachs Group Inc. (is a leading global financial holding company providing investment banking, securities and investment management services to a diversified client base. The stock saw solid earnings estimate revision of $12.82 over the past 30 days for this year and has an estimated earnings growth rate of 73.81%. It sports a Zacks Rank #1 and has a Growth Score of A. GS Quick Quote GS - Free Report) Colorado-based M.D.C. Holdings Inc. ( is engaged in homebuilding and financial service businesses in the United States. The stock has delivered an average earnings surprise of 23% in the past four quarters and has an expected earnings growth rate of 34.62%. It has a Zacks Rank #2 and Growth Score of A. MDC Quick Quote MDC - Free Report) Ohio-based Owens Corning Inc. ( is a world leader in building materials systems and composite solutions. The company saw positive earnings estimate revision by a penny over the past 30 days for this year with an expected earnings growth rate of 25.91%. Owens Corning has a Zacks Rank #2 and Growth Score of A. OC Quick Quote OC - 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) 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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