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 to create wealth when returns from the equity market are at risk.
In fact, stocks with a strong history of dividend growth year over year form a healthy portfolio with a greater scope of capital appreciation as opposed to simple dividend-paying stocks or those that have high yields. We have selected five dividend growth stocks — Diamondback Energy ( FANG Quick Quote FANG - Free Report) , Lam Research ( LRCX Quick Quote LRCX - Free Report) , Toll Brothers ( TOL Quick Quote TOL - Free Report) , Deere & Company ( DE Quick Quote DE - Free Report) and Triton International Limited ( TRTN Quick Quote TRTN - Free Report) — that could be compelling picks for your portfolio. Why Dividend Growth Investing Is Better?
Stocks that have a strong history of dividend growth belong to mature companies 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. Moreover, a history of dividend growth year over year leads to a healthy portfolio with greater scope of capital appreciation as opposed to simple dividend paying stocks or those with high yields. 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 20. Here are five of the 20 stocks that fit the bill: Texas-based Diamondback Energy Inc. is an independent oil and gas exploration & production company, with its primary focus on the Permian Basin. FANG saw solid earnings estimate revision of 76 cents over the past 30 days for this year and has an estimated earnings growth rate of 265.1%. Diamondback Energy has a Zacks Rank #1 and Growth Score of B. You can see . the complete list of today’s Zacks #1 Rank stocks here California-based Lam Research Corporation supplies wafer fabrication equipment and services to the semiconductor industry. LRCX saw upward earnings estimate revision of 16 cents over the past 30 days for this year and has an expected earnings growth rate of 25.9%. Lam Research has a Zacks Rank #2 and a Growth Score of B. Pennsylvania-based Toll Brothers Inc. 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. TOL saw solid earnings estimate revision of 14 cents over the past 30 days for the fiscal year (ending October 2022) and has an expected earnings growth rate of 43.9%. Toll Brothers has a Zacks Rank #2 and Growth Score of B. Illinois-based Deere & Company is the world’s largest producer of agricultural equipment, manufacturing agricultural machinery since 1837 under the iconic John Deere brand with its signature green and yellow color scheme. DE has an estimated earnings growth rate of 17.4% for the fiscal year (ending October 2022) and delivered an average earnings surprise of 48.1% for the past four quarters. Deere & Company carries a Zacks Rank #2 and has a Growth Score of A. 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). TRTN saw solid earnings estimate revision of 55 cents over the past 30 days for this year and has an estimated earnings growth rate of 94.1%. Triton International 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.
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. Click here to sign up for a free trial to the Research Wizard today 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