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5 Dividend Growth Stocks for Safe and Steady Income

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Focusing in on dividend stocks has been a safe and smart play during market turbulence. These cash payouts are major sources of consistent income for investors when returns from the equity market are at risk.

In particular, stocks that have a strong history of dividend growth as opposed to those that pays high yields form a healthy portfolio with more scope for capital appreciation.

Why is Dividend Growth Better?

Stocks with a steady dividend growth ensure steady returns and act as hedge against any market downturn and economic or political turmoil. This is especially true as these stocks belong to mature companies, which are less volatile to the large swings in the market.

These stocks often have a sustainable business model, a long track of profitability, rising cash flows, good liquidity, strong balance sheet and some value characteristics. All these superior fundamentals make dividend growth a quality and promising investment for the long term. However, the long history of outperformance for dividend growth stocks compared to the broad stock market or any other dividend paying stocks does not necessarily mean that they have the highest yields.

Here are the screening parameters that could result in a winning dividend growth portfolio:

5-Year Historical Dividend Growth greater than zero: This selects the stocks with a solid dividend growth history.

Most Recent Payout Ratio less than M-Industry: This is the measure of dividend payments as a percentage of earnings. A relatively low payout ratio indicates the company’s ability to increase dividend in the future even in tough times. 

5-Year Historical Sales Growth greater than zero: This represents the stocks with a strong record of growing revenue.

5-Year Historical EPS Growth greater than zero: This represents the 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 a better cash flow generated by the company.

52-Week Price Change greater than S&P 500 (Median): This ensures that the stock appreciated more than the S&P 500 over the past one year.

Zacks Rank less than 3: Stocks having a Zacks Rank #1 (Strong Buy) and 2 (Buy) generally outperform their peers in any type of market environment.

VGM Style Score of B or better:This is simply a weighted combination of Value, Growth and Momentum. This when combined with a Zacks Rank #1 or #2 offers the best upside potential.

Market Capitalization greater than $2 billion: We have eliminated small caps stocks to ensure better flexibility and tradability.

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

Tyson Foods Inc. (TSN - Free Report)

Royal Caribbean Cruises Ltd. (RCL - Free Report)

Aetna Inc.

Lear Corp. (LEA - Free Report)

Total System Services Inc.

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.

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Lear Corporation (LEA) - free report >>

Tyson Foods, Inc. (TSN) - free report >>

Royal Caribbean Cruises Ltd. (RCL) - free report >>