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5 Dividend Growth Stocks to Buy Cheap

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Volatility and uncertainty in the stock market have increased following hotter-than-expected inflation data. The data sparked fears of more aggressive rate hikes by the Fed that would continue to weigh on economic growth and resulted in the biggest stock bloodbath in two years.

As such, dividend investing seems prudent to fight the current market turmoil. The strategy is a major source of consistent income for investors in any type of market but does not offer dramatic price appreciation. In particular, focusing on the growth level in this strategy leads to higher returns.

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 — Boise Cascade (BCC - Free Report) , Triton International Limited (TRTN - Free Report) , TotalEnergies SE (TTE - Free Report) , McKesson Corporation (MCK - Free Report) and RCI Hospitality Holdings Inc. (RICK - Free Report) — that are compelling picks.

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 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 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.

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 five of the 12 stocks that fit the bill:

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. Boise Cascade has a P/E ratio of 2.95 compared with the industry average of 8.20. It delivered an average earnings surprise of 27.14% in the past four quarters.

Boise Cascade has a Zacks Rank #2 and a Growth Score of B. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Bermuda-based Triton International is the largest lessor of intermodal containers (large steel boxes that are used for transporting freight by ship/rail/truck). TRTN has a P/E ratio of 5.38 compared with the industry average of 9.76. Its earnings are estimated to grow 22.4%.

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

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 a P/E ratio of 3.57 compared with the industry average of 5.66 and has an estimated earnings growth rate of 108.5%.

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

California-based McKesson is a health care services and information technology company. The stock has seen solid earnings estimate revision of 20 cents over the past 30 days for the fiscal year (ending March 2023). McKesson has a P/E ratio of 14.35 compared with the industry average of 18.85.

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

Texas-based RCI Hospitality owns and/or operates adult nightclubs that offer live adult entertainment, restaurant, and bar services. It has a P/E ratio of 13.25 compared with the industry average of 19.34 and has an estimated earnings growth rate of 26.2% for the fiscal year (Sep 2022).  

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

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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