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5 Cheap Dividend Growth Stocks Worth Your Attention

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Stock market volatility has been driving the appeal for dividend investing. Though the strategy doesn’t offer dramatic price appreciation, it is a major source of consistent income in the form of an increase in payout in any type of market.

Stocks that have a strong history of dividend growth as opposed to those that offer high yields form a healthy portfolio with more scope for capital appreciation.

Peeping Into the 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.

Furthermore, these have a long history of outperformance than the broader stock market or any other dividend-paying stock over the long term. However, it does not necessarily mean that they have the highest yields.

As a result, picking stocks that offer dividend growth 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 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 year.

Top Zacks Rank: Stocks having a Zacks Rank #1 (Strong Buy) and 2 (Buy) generally outperform their peers in all types of market environments.

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 11.

Here are five of the 11 stocks that fit the bill:

Michigan-based Penske Automotive Group Inc. (PAG - Free Report) is engaged in the operation of automotive and commercial truck dealerships in the United States, Canada and Western Europe. The company has a P/E ratio of 7.58 compared with the industry average of 8.10 and an expected earnings growth rate 101.4% for this year. It has a Zacks Rank #1 and Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tennessee-based HCA Healthcare Inc. (HCA - Free Report) is the largest non-governmental operator of acute care hospitals in the United States. The company has a P/E ratio of 14.17 compared with the industry average of 14.30 and an expected earnings growth rate of 54.6% for this year. Microsoft has a Zacks Rank #2 and Growth Score of B.

California-based Applied Materials Inc. (AMAT - Free Report) is one of the world’s largest suppliers of equipment for the fabrication of semiconductor, flat panel liquid crystal displays, and solar photovoltaic cells and modules. The stock is expected to see earnings growth of 64% for the fiscal year (ending October 2021) and has a P/E ratio of 18.50 versus the industry average of 18.78. It has a Zacks Rank #2 and Growth Score of B.

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 13.77 compared with the industry average of 21. Its earnings are expected to grow to $4.68 per share this year from a loss of 15 cents reported last year. The stock carries a Zacks Rank #2 and has a Growth Score of B.

Virginia-based General Dynamics Corporation (GD - Free Report) is engaged in mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems; and business aviation. Its earnings are expected to grow 4.4% this year. The P/E ratio stands at 17.35 compared with the industry average of 17.39. The stock 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.