Back to top

Analyst Blog

Investment has never been as challenging it is today, with the global stock market continuously oscillating between gains and losses based on economic or political factors. Those thinking that the factors ruffling the market are more-or-less short-lived, please take note that volatility does not depend on their longevity. Rather it is based on the frequency of these external shocks that is unfortunately on the rise. The biggest challenge for investors is to keep the portfolio safeguarded against such upheavals.

As 2016 is drawing to a close, we can conclude that the year has been marked with intense volatility, ranging from oil price instability, rate hike issues, currency crisis, international trade disputes and the most controversial presidential election in U.S. history. Investors are thus on a lookout for a safe portfolio that promises a steady flow of income irrespective of the downturns.

Dividend Growth Strategy: The Best

If we have to go by the steady income generating formulas, the most popular one is dividend investing that offers succor in tough times. There are a number of dividend investing styles, of which dividend growth strategy has emerged as the most effective. It has been observed that stocks with a history of strong dividend growth are generally mature companies characterised by a sustainable business model, a long track record of profitability, rising cash flows, solid liquidity, a strong balance sheet and lower susceptibility to market fluctuations.

It has also been seen that stocks with dividend growth generally outperform peers and generate increased profits year after year. By betting on stocks with dividend growth, investors can enjoy rising current income while awaiting capital appreciation.

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

5-Year Historical Dividend Growth greater than 10%: This selects stocks with a solid dividend growth history.

Dividend yield greater than 2%: Indicates strong dividend-paying capacity.

5-Year Historical Sales Growth greater than 5%: This selects stocks with a strong record of revenue growth.

5-Year Historical EPS Growth greater than 5%: This shortlists stocks with a solid earnings growth history.

Zacks Rank 1 (Strong Buy) or 2 (Buy): Whether good market conditions or bad, stocks with a Zacks Rank #1 or 2 have a proven history of success.

5 Stocks to Bet On

Apollo Commercial Real Estate Finance, Inc. (ARI - Free Report)

This is a real estate investment trust that originates, acquires, invests and manages commercial first mortgage loans, subordinate financings, commercial mortgage-backed securities, and other commercial real estate-related debt investments.

Apollo Commercial carries a Zacks Rank #2 and currently offers a dividend yield of 10.54%. Five-year historical dividend growth rate is also at an impressive level of 7.23%. The stock’s long-term earnings and sales growth rate are 7.52% and 38.19%, respectively. Apollo Commercial is currently a great pick in terms of share price trend as well. Over the past five years, the stock has steadily outperformed the broader industry viz. TEIT Mortgage Trust Market. Over this period, the shares of the company have gained 27.21% compared to the loss of 9.06% of the broader industry.

ARMOUR Residential REIT, Inc. (ARR - Free Report)

This Zacks Rank #2 company invests in residential mortgage-backed securities in the U.S. The stock is also a great dividend growth pick with a dividend yield of 11.74%. Five-year historical dividend growth rate is also an impressive 16.16% while the stock’s long-term earnings and sales growth rate are pegged at 136.33% and 10.62%, respectively.

Chimera Investment Corporation (CIM - Free Report)

This is a real estate investment trust that invests in residential mortgage-backed securities (RMBS), residential mortgage loans, commercial mortgage loans, real estate-related securities, and various other asset classes.

Chimera sports a Zacks Rank #1 and currently offers a dividend yield of 11.19%. Five-year historical dividend growth rate is also at a stellar 13.06%. The stock’s long-term earnings and sales growth rate are 7.42% and 8.74%, respectively.

This stock is also a great pick in terms of share price trend. In the last three years, the stock has outperformed the broader REIT Mortgage Trust Market. Over the past five years, the shares of the stock have rallied 28.97% compared to the broader industry’s loss of 9.06%.

Capital Product Partners L.P. (CPLP - Free Report)

This is a shipping company that provides marine transportation services in Greece. It transports a range of cargoes, including crude oil, refined oil products, chemicals and medium to long-term time and bareboat charters.

The stock, along with a Zacks Rank #2, has a dividend yield of 10.64%. The company’s five-year historical dividend growth rate is a strong 12.21% while the stock’s long-term earnings and sales growth rate are 25.36% and 12.4%, respectively. This stock has also been trading above the broader Transport-ship market over the last five years.

New Residential Investment Corp. (NRZ - Free Report)

This is a real estate investment trust that focuses on investing in and managing residential mortgage-related assets. The stock has a dividend yield of 10.64% and an impressive five-year historical dividend growth rate of 11.15%. The company’s long-term earnings and sales growth rate are at 47.77% and 146.47%, respectively. The stock is also trading higher than the broader Transport-ship market over the last five years. New Residential Investment currently holds a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

 

Confidential from Zacks

This week, Zacks researchers have named 7 other stocks that look to break out even sooner than today's Bull of the Day. You can see these time-sensitive tickers free, and access additional trades that are not available to the public. Simply click here>>.