Honing in on dividend is the best practice during market turbulence. These cash payouts are major sources of consistent income for investors when returns from the equity market are at risk.
Dividend paying stocks are primarily mature companies, which are less susceptible to large swings in the market. Their market leading position, large customer base, sustainable business model, long track of profitability and strong liquidity allow them to offer outsized payouts or sizable yields on a regular basis irrespective of the market direction. As a result, these stocks provide greater stability and more scope for capital appreciation as opposed to those that pay high yields.
Further, a history of strong dividend growth indicates that a future hike is likely. This makes the portfolio healthy and safe.
Though these stocks have a long history of outperformance compared with the broad stock market or any other dividend paying stocks, it 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 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 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 (Market Weight): This ensures that the stock appreciated more than the S&P 500 over the past one year.
Zacks Rank Less than 2: Stocks having a Zacks Rank #1 (Strong Buy) and 2 (Buy) generally outperform their peers in all types of market environment. You can see the complete list of today’s Zacks #1 Rank stocks here.
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.
Here are five of the 24 stocks that fit the bill:
Scripps Networks Interactive Inc. : This Tennessee-based company is the leading developer of lifestyle-oriented content for linear and interactive video platforms in the United States, the United Kingdom and other European markets, the Middle East and Africa, the Asia-Pacific, and Latin America. The stock has a VGM Style Score of ‘B’ and sports a Zacks Rank #1.
Scripps Networks delivered an average positive earnings surprise of 27.89% in the past four quarters. Moreover, in the last one year, the stock has returned 40%, which beats the Zacks Broadcast Radio and Television industry’s gain of 23.8%.
Pool Corporation (POOL - Free Report) : This Covington, LA-based company is the world's largest wholesale distributor of swimming pool supplies, equipment and related products. The stock has a VGM Style Score of ‘B’ and sports a Zacks Rank #1.
Pool delivered an average positive earnings surprise of 189.93% in the trailing four quarters. Further, the stock has outperformed the Zacks Leisure and Recreation Products industry in the last one year. While Pool added 41.7%, the industry gained 11.3% over the said period.
Owens Corning (OC - Free Report) : This Toledo TX-based company develops, manufactures and markets insulation, roofing and fiberglass composites. The stock has a VGM Style Score of ‘A’ and sports a Zacks Rank #1.
The stock delivered an average positive earnings surprise of 35.13% in the past four quarters. Moreover, in the last six months the stock has returned 7%, which beats the Zacks Building Products- Miscellaneous industry’s gain of 6.3%.
PulteGroup Inc. (PHM - Free Report) : This Atlanta GA-based company is engaged in homebuilding and financial services businesses primarily in the U.S. The stock has a VGM Style Score of ‘B’ and sports a Zacks Rank #1.
PulteGroup delivered an average positive earnings surprise of 13.49% in the trailing four quarters. Further, the stock has outperformed the Zacks Building Products- Home Builders industry in the last one-year. While PulteGroup gained 29.6%, the industry returned 25.6% over the same period.
Evercore Partners Inc. (EVR - Free Report) is a leading investment banking boutique providing advisory services to prominent multinational corporations. The company has a VGM Style Score of ‘B’ and sports a Zacks Rank #1.
The stock delivered an average four-quarter positive earnings surprise of 15.69%. Meanwhile, Evercore’s one-year return of 71.5% is better than the Zacks Financial- Investment Bank industry’s gain of 13.2%.
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.
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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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