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5 Dividend Growth Stocks to Buy At a Bargain

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The stock market is struggling this year on Russia’s invasion of Ukraine, skyrocketing inflation and Fed’s rate hike. Many investors are therefore looking for safe and defensive bets, raising the appeal for dividend investing. Though it does not offer dramatic price appreciation, dividend stocks are a major source of consistent income for investors in any type of market. These stocks tend to outperform during volatile markets and can reduce the volatility of a portfolio.

In particular, focusing on the growth level in this strategy leads to higher returns. Stocks with a strong history of year-over-year dividend growth 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 — Westlake Corporation (WLK - Free Report) , Boise Cascade (BCC - Free Report) , Target Corporation (TGT - Free Report) , Everest Re Group Ltd (RE - Free Report) and Progress Software (PRGS - Free Report) — that could be compelling picks amid market volatility.

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 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 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 12.

Here are the five of the 12 stocks that fit the bill:

Texas-based Westlake Corporation is a global producer and supplier of materials and innovative products. The company has a P/E ratio of 6.87 compared with the industry average of 7.02. Westlake delivered an average earnings surprise of 13.78% in the past four quarters.

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

Idaho-based Boise Cascade operates as a wood products manufacturer and building materials distributor. The company manufactures engineered wood products, plywood, lumber and particleboard and distributes wood products, such as decking, EWP, lumber, panel, particleboard, and MDF products. It has a P/E ratio of 5.05 compared with the industry average of 10.27 and delivered an average earnings surprise of 38.18% in the past four quarters.

Boise Cascade has a Zacks Rank #2 and Growth Score of A.

Minnesota-based Target operates as a general merchandise retailer in the United States. The company offers food assortments, including perishables, dry grocery, dairy, and frozen items; apparel, accessories, home décor products, electronics, toys, seasonal offerings, food, and other merchandise; and beauty and household essentials. The company has a P/E ratio of 15.48 compared with the industry average of 19.85. The stock saw earnings estimate revision of 8 cents over the past 30 days for the fiscal year (January 2023).  

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

Bermuda-based Everest Re writes property and casualty, reinsurance and insurance in the United States, Bermuda and international markets. The stock has a P/E ratio of 8.39 compared with the industry average of 14.11 and delivered an average earnings surprise of 20.35% in the past four quarters.

Everest Re carries a Zacks Rank #2 and Growth Score of A.

Massachusetts-based Progress offers the leading platform for developing and deploying mission-critical business applications. It has a P/E ratio of 11.54 compared with the industry average of 29.47. Its earnings are expected to grow 4.6% in the fiscal year (ending Nov 2022).  

Progress 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.