Dividend stocks lost some of their shine due to rising yields after Republican Donald Trump was elected as the new president. Yet, investors are still adding some of these to their portfolio. In particular, stocks with a strong history of dividend hike year over year are enjoying a solid run.
Why Growth-Focused Dividends
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 irrespective of the stock market direction. This is because these stocks generally act as a hedge against economic uncertainty while simultaneously 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, strong balance sheet and some value characteristics. Further, a history of strong dividend growth indicates that a future hike is likely, which makes the portfolio safer.
Although these stocks do not necessarily have the highest yields, they have outperformed for a longer period than the broad stock market or any other dividend paying stock.
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.
5-Year Historical Sales Growth greater than zero: This represents stocks with a strong record of growing revenue.
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 to 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 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. 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 six of the 12 stocks that fit the bill:
EnerSys (ENS - Free Report) : This Pennsylvania-based company is a global leader in stored energy solutions for industrial applications. It saw solid earnings estimate revision of 19 cents over the past three months, with an expected earnings growth of 16.54%. It has a Zacks Rank #1 and a VGM Style Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Dick's Sporting Goods Inc. (DKS - Free Report) : This Pennsylvania-based company is a leading full-line sporting goods retailer in the United States. The stock saw positive earnings estimate revision of 21 cents over the past 90 days for this fiscal year and delivered earnings surprises in two of the past four quarters, with an average beat of 4.68%. The stock has a Zacks Rank #2 and a VGM Style Score of A.
Becton, Dickinson and Company (BDX - Free Report) : This New Jersey-based company is engaged in the development, manufacturing, and selling of medical devices, instrument systems, and reagents worldwide. The stock saw solid earnings estimate revision of nickel over the past 90 days for this fiscal year with an expected earnings growth rate of 10.78%. It has a Zacks Rank #2 and a VGM Style Score of B.
Everest Re Group Ltd. (RE - Free Report) : This Bermuda-based company is a world leader in property and casualty reinsurance and insurance, offering innovative products, responsive service and unsurpassed financial strength. The stock saw whopping earnings estimate revision of $1.15 over the past 90 days for this year and delivered earnings surprises in three of the past four quarters, with an average beat of 25.64%. It has a Zacks Rank #2 and a VGM Style Score of B.
Southwest Gas Corporation (SWX - Free Report) : This Nevada-based company is engaged in the business of purchasing, transporting and distributing natural gas in portions of Arizona, Nevada and California. It saw positive earnings estimate revision of a couple of cents for this year over the past 30 days, with an expected growth rate of 7.88%. Southwest Gas has a Zacks Rank #2 and a VGM Style Score of B.
Discover Financial Services (DFS - Free Report) : This Illinois-based company is an operator of a direct banking and payment services company in the United States. It delivered an average positive earnings surprise of 0.12% over the past four quarters and saw earnings estimate revision of seven for this year over the past 90 days. The stock has a Zacks Rank #2 and a VGM Style Score of B.
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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.
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