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After a strong first half, Wall Street lost its momentum as rate hike fears returned. Markets are speculating that the Fed will raise interest rates in its meeting later this month, making investors jittery. In such a scenario, dividend investing seems the best choice as it offers consistent and safe income.
Though the strategy does not offer dramatic price appreciation, it is a major source of consistent income for investors in any market. 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 with high yields.
We have selected five dividend stocks — Toll Brothers (TOL - Free Report) , Darden Restaurants Inc. (DRI - Free Report) , Caterpillar Inc. (CAT - Free Report) , Microchip Technology Incorporated (MCHP - Free Report) and HCA Healthcare Inc. (HCA - Free Report) — that possess strong growth prospects.
Dividend Growth: Why a Win Strategy?
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 a 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.
Just these few criteria narrowed down the universe from over 7,700 stocks to just 15.
Here are five of the 15 stocks that fit the bill:
Pennsylvania-based Toll Brothers 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 25 cents over the past 30 days for the fiscal year (ending October 2023) and has an expected earnings growth rate of 6.7%
Florida-based Darden Restaurants is one of the largest casual dining restaurant operators worldwide. DRI saw a solid earnings estimate revision of 9 cents over the past 30 days for the fiscal year (ending May 2024), with estimated earnings growth of 10%.
Darden Restaurants has a Zacks Rank #2 and a Growth Score of B.
Illinois-based Caterpillar is the largest global construction and mining equipment manufacturer. The company saw a solid earnings estimate revision of 14 cents over the past 30 days for this year, with an estimated growth rate of 25.8%.
CAT has a Zacks Rank #2 and Growth Score of B.
Arizona-based Microchip Technology is engaged in developing and manufacturing microcontrollers, memory and analog and interface products for embedded control systems, which are small, low-power computers designed to perform specific tasks. The company saw positive earnings estimate revision of a couple of cents over the past 30 days for the fiscal year (ending March 2024) and has an estimated earnings growth rate of 3.8%.
MCHP has a Zacks Rank #2 and a Growth Score of B.
Tennessee-based HCA Healthcare is the largest non-governmental operator of acute care hospitals in the United States. HCA saw a solid earnings estimate revision of a penny over the past 30 days for this year and has an estimated earnings growth rate of 7.2%.
HCA Healthcare 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.
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.
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5 Dividend Stocks With Strong Growth Prospects
After a strong first half, Wall Street lost its momentum as rate hike fears returned. Markets are speculating that the Fed will raise interest rates in its meeting later this month, making investors jittery. In such a scenario, dividend investing seems the best choice as it offers consistent and safe income.
Though the strategy does not offer dramatic price appreciation, it is a major source of consistent income for investors in any market. 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 with high yields.
We have selected five dividend stocks — Toll Brothers (TOL - Free Report) , Darden Restaurants Inc. (DRI - Free Report) , Caterpillar Inc. (CAT - Free Report) , Microchip Technology Incorporated (MCHP - Free Report) and HCA Healthcare Inc. (HCA - Free Report) — that possess strong growth prospects.
Dividend Growth: Why a Win Strategy?
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 a 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.
Just these few criteria narrowed down the universe from over 7,700 stocks to just 15.
Here are five of the 15 stocks that fit the bill:
Pennsylvania-based Toll Brothers 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 25 cents over the past 30 days for the fiscal year (ending October 2023) and has an expected earnings growth rate of 6.7%
Toll Brothers has a Zacks Rank #1 and a Growth Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.
Florida-based Darden Restaurants is one of the largest casual dining restaurant operators worldwide. DRI saw a solid earnings estimate revision of 9 cents over the past 30 days for the fiscal year (ending May 2024), with estimated earnings growth of 10%.
Darden Restaurants has a Zacks Rank #2 and a Growth Score of B.
Illinois-based Caterpillar is the largest global construction and mining equipment manufacturer. The company saw a solid earnings estimate revision of 14 cents over the past 30 days for this year, with an estimated growth rate of 25.8%.
CAT has a Zacks Rank #2 and Growth Score of B.
Arizona-based Microchip Technology is engaged in developing and manufacturing microcontrollers, memory and analog and interface products for embedded control systems, which are small, low-power computers designed to perform specific tasks. The company saw positive earnings estimate revision of a couple of cents over the past 30 days for the fiscal year (ending March 2024) and has an estimated earnings growth rate of 3.8%.
MCHP has a Zacks Rank #2 and a Growth Score of B.
Tennessee-based HCA Healthcare is the largest non-governmental operator of acute care hospitals in the United States. HCA saw a solid earnings estimate revision of a penny over the past 30 days for this year and has an estimated earnings growth rate of 7.2%.
HCA Healthcare 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.