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A history of dividend growth year over year leads to a healthy portfolio with a greater scope of capital appreciation as opposed to simple dividend paying stocks or those with high yields. Now, with the biggest tax overhaul in decades, the appeal for these stocks have increased on optimism that the new tax structure would prompt dividend hikes. This has made the investment case for dividend growth stocks even stronger.
Inside The Dividend Growth Strategy
Stocks that have a strong history of dividend growth belong to mature companies, which are less susceptible to large swings in the market, and thus act as a hedge against economic or political uncertainty as well as stock market volatility. At the same time, these 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, a strong balance sheet and some value characteristics. Further, a history of strong dividend growth indicates that dividend increase in the future is likely. This makes the portfolio healthy and safe.
Although these stocks do not necessarily have the highest yields, they have outperformed for a longer period than the broader stock market or any other dividend-paying stock.
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.
Growth Style Score of B or better: Our research shows that stocks with a Growth Score of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential.
P/E Ratio Less than X-Industry: A ratio less than X-industry indicates that the stock is cheap and undervalued in that industry.
Here are five of the 11 stocks that fit the bill:
New York-based Evercore Inc. (EVR - Free Report) operates as an independent investment banking advisory firm in the United States, Europe, Latin America and internationally. The company has a P/E ratio of 14.51 compared with the industry average of 17.80 and an expected earnings growth rate of 19.75% for this year. It has a Zacks Rank #1 and a Growth Style Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Michigan-based Lear Corporation (LEA - Free Report) is a global leader in designing, developing, engineering, manufacturing, assembling and supplying automotive seating, electrical distribution systems and related components primarily to automotive original equipment manufacturers worldwide. The company has a P/E ratio of 10.57 compared with the industry average of 12.94. Its earnings are expected to grow 6.03% this year. It has a Zacks Rank #2 and a Growth Style Score of B.
Illinois-based Jones Lang LaSalle Incorporated (JLL - Free Report) is a full-service real estate firm that provides management services, corporate and financial services and investment management services to corporations and other real estate owners, users and investors worldwide. It has a P/E ratio of 16.95 versus the industry average of 19.18 and an expected earnings growth rate of 8.58% for this year. The stock has a Zacks Rank #2 and a Growth Style Score of A.
Washington-based Microsoft Corporation (MSFT - Free Report) is engaged in developing, licensing, and supporting software products, services and devices worldwide. Its earnings are expected to grow 2.11% for the current fiscal year (ending June 2018) while its P/E ratio stands at 26.09 compared with the industry average of 33.39. The stock has a Zacks Rank #2 and a Growth Style Score of A.
Singapore-based Broadcom Limited (AVGO - Free Report) designs, develops and supplies a range of complex digital and mixed signal complementary metal oxide semiconductor-based devices and analog III-V based products worldwide. It is expected to see earnings growth of 20.66% for this fiscal year (ending October 2018) and has a P/E ratio of 14.08 versus the industry average of 17.55. Broadcom has a Zacks Rank #1 and a Growth 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.
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.
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 »
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5 Dividend Growth ETFs for Higher Returns in 2018
A history of dividend growth year over year leads to a healthy portfolio with a greater scope of capital appreciation as opposed to simple dividend paying stocks or those with high yields. Now, with the biggest tax overhaul in decades, the appeal for these stocks have increased on optimism that the new tax structure would prompt dividend hikes. This has made the investment case for dividend growth stocks even stronger.
Inside The Dividend Growth Strategy
Stocks that have a strong history of dividend growth belong to mature companies, which are less susceptible to large swings in the market, and thus act as a hedge against economic or political uncertainty as well as stock market volatility. At the same time, these 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, a strong balance sheet and some value characteristics. Further, a history of strong dividend growth indicates that dividend increase in the future is likely. This makes the portfolio healthy and safe.
Although these stocks do not necessarily have the highest yields, they have outperformed for a longer period than the broader stock market or any other dividend-paying stock.
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.
Growth Style Score of B or better: Our research shows that stocks with a Growth Score of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential.
P/E Ratio Less than X-Industry: A ratio less than X-industry indicates that the stock is cheap and undervalued in that industry.
Here are five of the 11 stocks that fit the bill:
New York-based Evercore Inc. (EVR - Free Report) operates as an independent investment banking advisory firm in the United States, Europe, Latin America and internationally. The company has a P/E ratio of 14.51 compared with the industry average of 17.80 and an expected earnings growth rate of 19.75% for this year. It has a Zacks Rank #1 and a Growth Style Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Michigan-based Lear Corporation (LEA - Free Report) is a global leader in designing, developing, engineering, manufacturing, assembling and supplying automotive seating, electrical distribution systems and related components primarily to automotive original equipment manufacturers worldwide. The company has a P/E ratio of 10.57 compared with the industry average of 12.94. Its earnings are expected to grow 6.03% this year. It has a Zacks Rank #2 and a Growth Style Score of B.
Illinois-based Jones Lang LaSalle Incorporated (JLL - Free Report) is a full-service real estate firm that provides management services, corporate and financial services and investment management services to corporations and other real estate owners, users and investors worldwide. It has a P/E ratio of 16.95 versus the industry average of 19.18 and an expected earnings growth rate of 8.58% for this year. The stock has a Zacks Rank #2 and a Growth Style Score of A.
Washington-based Microsoft Corporation (MSFT - Free Report) is engaged in developing, licensing, and supporting software products, services and devices worldwide. Its earnings are expected to grow 2.11% for the current fiscal year (ending June 2018) while its P/E ratio stands at 26.09 compared with the industry average of 33.39. The stock has a Zacks Rank #2 and a Growth Style Score of A.
Singapore-based Broadcom Limited (AVGO - Free Report) designs, develops and supplies a range of complex digital and mixed signal complementary metal oxide semiconductor-based devices and analog III-V based products worldwide. It is expected to see earnings growth of 20.66% for this fiscal year (ending October 2018) and has a P/E ratio of 14.08 versus the industry average of 17.55. Broadcom has a Zacks Rank #1 and a Growth 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 »