While rising yields have somewhat dulled the appeal for dividend investing, stocks that consistently pay higher dividends are still in vogue.
Dividend Growth in Focus
Stocks that have a strong history of dividend growth generally act as a hedge against economic or political uncertainty as these belong to mature companies, which are less susceptible to large swings in the market while simultaneously offer downside protection with their consistent increase in payouts.
These stocks have superior fundamentals as opposed to their traditional dividend counterparts such as a sustainable business model, a long track record of profitability, rising cash flows, good liquidity, strong balance sheet and some value characteristics. They have a history of outperformance over the long term but not necessarily high dividend yields. All these makes dividend growth a quality and promising investment metric for the long term.
Further, a history of strong dividend growth indicates that dividend increase in the future is likely. This makes the portfolio healthy and safe. Though these stocks have a long history of outperformance compared with the broader stock market or any other dividend paying stock, it does not necessarily mean that they have the highest yields.
As a result, picking dividend growth stocks appear as winning strategies when some other parameters are also included.
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 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.
Top Zacks Rank: Stocks having a Zacks Rank #1 (Strong Buy) and 2 (Buy) generally outperform 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.
Here are five of the 25 stocks that fit the bill:
Owens Corning Inc. (OC - Free Report) : This Ohio-based company is a world leader in building materials systems and composite solutions. The stock delivered an average positive earnings surprise of 20.17% in the past four quarters. The company witnessed no earnings estimate revision over the past 30 days for this year and has an expected earnings growth rate of 17.96%. It has a VGM Style Score of A and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here
Thermo Fisher Scientific Inc. (TMO - Free Report) : This Massachusetts-based company is a provider of analytical instruments, equipment, reagents and consumables, software, and services for research, manufacturing, analysis, discovery, and diagnostics worldwide. It saw positive earnings estimate revision of 10 cents for this year over the past 30 days, with an expected growth rate of 12.78%. Thermo Fisher has a Zacks Rank #2 and a VGM Style Score of B.
Huntington Ingalls Industries Inc. (HII - Free Report) : This Virginia-based company is engaged in designing, building, overhauling, and repairing ships primarily for the U.S. Navy and the U.S. Coast Guard. The company saw positive earnings estimate revision of five cents over the past 30 days for this year and has an expected earnings growth rate of 14.19%. It has a Zacks Rank #2 and a VGM Style Score of A.
Royal Caribbean Cruises Ltd. (RCL - Free Report) : This Florida-based company is a global cruise vacation company that operates Royal Caribbean International, Celebrity Cruises, and Royal Celebrity Tours. It has seen positive earnings estimate revision by a penny for this year over the past 30 days, with an expected earnings growth rate of 22.20%. The stock has a Zacks Rank #2 and a VGM Style Score of B.
MKS Instruments, Inc. (MKSI - Free Report) : This Massachusetts-based company is a leading worldwide developer, manufacturer and supplier of instruments, components and subsystems used to measure, control and analyze gases in semiconductor manufacturing and similar industrial manufacturing processes. The company has seen solid earnings estimate revision of five cents over the past 90 days for this year and has an expected earnings growth rate of 78.99%. It has a Zacks Rank #2 and a VGM Style Score of B.
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 »