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5 Unbeatable Dividend Growth Stocks for 2022

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In the New Year, investors are eyeing both income and growth, given that volatility and uncertainty will continue to keep stock markets at check. This can easily be done through dividend stocks. Though these stocks do not offer dramatic price appreciation, these are 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 — Toll Brothers (TOL - Free Report) , Microsoft Corporation (MSFT - Free Report) , Avery Dennison Corporation (AVY - Free Report) , J.B. Hunt Transport Services (JBHT - Free Report) and Thermo Fisher Scientific Inc. (TMO - Free Report) — that could outperform the market in 2022.

Dividend Growth: A Winning Strategy

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 a 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 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.

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:

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 a solid earnings estimate revision of 87 cents over the past 30 days for the fiscal year (ending October 2022) and has an expected earnings growth rate of 46.3%.

Toll Brothers has a Zacks Rank #1 and a Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Washington-based Microsoft Corporation is one of the largest broad-based technology providers in the world. The company dominates the PC software market with more than 80% of the market share for operating systems. Microsoft saw a positive earnings estimate revision of a penny for the fiscal year (ending June 2022) over the past month and has an estimated earnings growth rate of 14.5%

Microsoft Corporation has a Zacks Rank #2 and a Growth Score of A.

California-based Avery Dennison produces pressure-sensitive materials, and a variety of tickets, tags, labels and other converted products. AVY delivered an average earnings surprise of 9.02% in the past four quarters.

Avery Dennison currently has a Zacks Rank #2 and a Growth Score of A.

Arkansas-based J.B. Hunt Transport is a provider of a broad range of transportation services to a diverse group of customers through the United States, Canada and Mexico. JBHT has delivered an average earnings surprise of 9.89% in the past four quarters.

J.B. Hunt has a Zacks Rank #2 and a Growth Score of A.

Massachusetts-based Thermo Fisher is a scientific instrument maker and a world leader in serving science. The stock has delivered an average earnings surprise of 9.02% in the past four quarters.

Thermo Fisher has a Zacks Rank #2 and a 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.