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5 Dividend Growth Stocks to Beat September Slump

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September is historically the worst month for stocks due to a seasonal phenomenon. This is because investors are more prone to selling than buying when they return from their summer vacations, trading volume after Labor Day is mostly bearish, many mutual funds have their fiscal year ending Sep 30, window-dressing is rampant, and investors generally sell stocks to pay tuition bills for their kids’ private schools and colleges.

Against this backdrop, investing in dividend stocks seems like the best strategy. 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.

We have selected five dividend growth stocks — TotalEnergies SE (TTE - Free Report) , J.B. Hunt Transport Services (JBHT - Free Report) , Archer-Daniels-Midland Company (ADM - Free Report) , McKesson Corporation (MCK - Free Report) and Republic Services Inc. (RSG - Free Report) — that could be solid picks to beat the September slump.

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 22.

Here are five of the 22 stocks that fit the bill:

France-based TotalEnergies is among the top five publicly traded global integrated oil and gas companies based on production volumes, proved reserves and market capitalization. It has seen solid earnings estimate revision of 18 cents over the past 30 days for this year and has an estimated earnings growth rate of 107%.  

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

Arkansas-based J.B. Hunt is a provider of a broad range of transportation services to a diverse group of customers throughout the United States, Canada and Mexico. JBHT saw a positive earnings estimate revision of a couple of cents over the past 30 days for this year and has an expected earnings growth rate of 34.2%.

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

Illinois-based Archer-Daniels is one of the leading producers of food and beverage ingredients as well as goods made from various agricultural products. ADM has seen solid earnings estimate revision of 6 cents for this year and has an expected earnings growth rate of 30.2%.

Archer-Daniels has a Zacks Rank #2 and Growth Score of A.

California-based McKesson is a health care services and information technology company. The stock has seen a solid earnings estimate revision of 99 cents over the past 30 days for the fiscal year (ending March 2023) and has an expected earnings growth rate of 2.4%.

McKesson has a Zacks Rank #2 and Growth Score of B.

Arizona-based Republic Services is the second largest provider of non-hazardous solid waste collection, transfer, disposal, recycling, and energy services in the United States. It has seen an upward earnings estimate revision of 11 cents for this year over the past month and has an estimated earnings growth rate of 14.6%.

Republic Services 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.

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.

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