With uncertainty ruling the markets since the beginning of the year, it’s not surprising that dividend investing has emerged as one of the most popular investing themes. Dividends are major sources of consistent income for investors when returns from price movements of stocks are at risk.
Why Choose Dividend Growth There are multiple styles of dividend investing out of which dividend growth is the most appealing. Stocks with dividend growth generally outperform their peers and generate increased profits year after year. Thus, the dividend growth strategy has an edge over the steady dividend strategy. By investing in stocks with dividend growth, investors can enjoy rising current income while awaiting capital appreciation. Dividend growth stocks also provide some margin of safety, which enables investors to withstand shocks. In fact, stocks that have a strong history of dividend growth, as opposed to those that have high yields, form a healthy portfolio. Moreover, these stocks often have superior fundamentals compared to other dividend paying stocks. This is because dividend growth is often an outcome of a sustainable business model, a long track record of profitability, rising cash flows, good liquidity, a strong balance sheet and some value characteristics. Here are the screening parameters that could result in a winning dividend growth portfolio: 5-Year Historical Dividend Growth greater than zero: This selects 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 even during tough times. 5-Year Historical Sales Growth greater than zero: This selects stocks with a strong record of revenue growth. 5-Year Historical EPS Growth greater than zero: This shortlists 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. 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 or Equal to 2: Stocks having a Zacks Rank #1 (Strong Buy) or 2 (Buy) generally perform better than their peers in all types of market environment. VGM Style Score of B or better: This is simply a weighted combination of Value, Growth and Momentum. Market Capitalization greater than $2 billion: We have eliminated small-cap stocks to ensure better flexibility and tradability. Here are five of the 12 stocks that fit the bill: AT&T, Inc. ( T Quick Quote T - Free Report) is the second largest wireless service provider in North America and one of the world’s leading communications service carriers. The stock has a Zacks Rank #2 and a VGM Style Score of B. It also has an average four-quarter EPS surprise of 5.3%. Nu Skin Enterprises Inc. NUS offers a comprehensive line of premium-quality beauty and wellness products in more than 50 markets globally. Its earnings are expected to grow at a rate of 6.2% over thenext 5 years. This Zacks Rank #2 company has a VGM Style Score of B. Carlisle Companies Incorporated CSL is a global diversified company that designs, manufactures and markets products addressing a broad range of niche markets including commercial roofing, energy, agriculture and auto refinishing among others. Its earnings are expected to grow at a rate of 15.6% this year, much above the industry average of 2%. The stock has a Zacks Rank #1 and a VGM Style Score of B. NVIDIA Corporation NVDA is a computer technology company with leadership position in GPU-accelerated computing. The stock has delivered a positive average earnings surprise of 57.9% over the past four quarters. It has a Zacks Rank #1 and a VGM Style Score of B. MB Financial Inc. MBFI is a holding company for MB Financial Bank, N.A. with assets of approximately $15.6 billion. Its earnings are expected to growth at a rate of 10.5% over thenext 5 years. The stock has a Zacks Rank #2 and a VGM Style 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 Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »