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5 Great Dividend Growth Stocks to Buy on the Cheap

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The lure for dividend investing is back on inflationary concerns. This is because 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 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.

P/E Ratio Less than X-Industry: A ratio less than X-industry indicates that the stock is cheap and undervalued in that industry.

Just these few criteria narrowed down the universe from over 7,700 stocks to just 18.

Here are five of the 18 stocks that fit the bill:

Las Vegas-based Boyd Gaming Corporation (BYD - Free Report) is a multi-jurisdictional gaming company. It owns and operates gaming entertainment properties in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana, Mississippi, Missouri, Ohio and Pennsylvania. The company has a P/E ratio of 18.82 compared with the industry average of 26.97. Its earnings are expected to grow more than 100% this year. Boyd Gaming has a Zacks Rank #1 and Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Texas-based Santander Consumer USA Holdings Inc. is a technology-driven consumer finance company focused on vehicle finance and unsecured consumer lending products. The company has a P/E ratio of 6.01 compared with the industry average of 8.49. Its earnings are expected to grow 111.5% this year. The stock has a Zacks Rank #1 and Growth Score of B.

Bermuda-based Triton International Limited is the largest lessor of intermodal containers (large steel boxes that are used for transporting freight by ship/rail/truck). The company has a P/E ratio of 6.39 compared with the industry average of 18.22. Its earnings are expected to grow 79.2% this year. The stock has a Zacks Rank #2 and Growth Score of B.

Minnesota-based Target Corporation (TGT - Free Report) has evolved from just being a pure brick-&-mortar retailer to an omni-channel entity. It has a P/E ratio of 23.22 compared with the industry average of 26.33 and has delivered an average positive earnings surprise of 53.3% in the past four quarters. The stock has a Zacks Rank #2 and Growth Score of A.

California-based HP Inc. (HPQ - Free Report) is a leading global provider of personal computing and other access devices, imaging and printing products, and related technologies, solutions and services to individual consumers, SMBs and large enterprises, including customers in the government, health and education sectors. The company has a P/E ratio of 9.70 compared with the industry average of 17.76. Its earnings are expected to grow 46.5% this fiscal year (ending October 2021). The stock 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.

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.

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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.


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