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Beat the September Slump With These Dividend Growth Stocks

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As September is historically a weak month for the stock market, investing in dividend stocks seems like the best strategy. This is because investors can enjoy rising current income while anticipating capital appreciation irrespective of market conditions.

In fact, 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.

Why Dividend Growth?

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 a dividend hike is likely in the future.

Furthermore, these have a long history of outperformance over the long term. However, it does not necessarily mean that they have the highest yields.

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 16.

Here are five of the 16 stocks that fit the bill:

Chicago-based Jones Lang LaSalle Inc. (JLL - Free Report) is a leading full-service real estate firm that provides corporate, financial and investment management services to corporations and other real estate owners, users and investors worldwide. The company saw a solid earnings estimate revision of $1.00 over the past 30 days for this year and has an expected earnings growth rate of 62.5%. 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.

Massachusetts-based Watts Water Technologies Inc. (WTS - Free Report) designs, manufactures and sells various water safety and flow control products for the water quality, water conservation, water safety and water flow control markets. The company saw a solid earnings estimate revision of 39 cents over the past 30 days for this year with an expected earnings growth rate of 36.1%. Watts Water has a Zacks Rank #2 and Growth Score of B.

California-based Robert Half International Inc. (RHI - Free Report) is one of the world's largest providers of professional consulting and staffing services. The company has an estimated earnings growth rate of 85.9% for this year and delivered an average earnings surprise of 21.09% for the past four quarters. The stock has a Zacks Rank #2 and Growth Score of A.

Arizona-based Microchip Technology Incorporated (MCHP - Free Report) is engaged in developing and manufacturing of microcontrollers, memory and analog and interface products for embedded control systems, which are small, low-power computers designed to perform specific tasks. The company saw a solid earnings estimate revision of 5 cents over the past 30 days for the fiscal year (ending March 2022) and has an estimated earnings growth rate of 28.4%. The stock has a Zacks Rank #2 and Growth Score of B.

Colorado-based Cimarex Energy Co is an independent oil & gas exploration and production firm. The company saw a solid earnings estimate revision of 12 cents over the past 30 days for this year and has an expected earnings growth rate of 538.8%. It has a Zacks Rank #2 and Growth Score of B.

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.