Dividend growth stocks lead to a healthy portfolio with a greater scope of capital appreciation as opposed to simple dividend paying stocks or those with high yields.
Why Dividend Growth?
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 is likely in the future.
Moreover, a history of dividend growth year over year leads to a healthy portfolio with greater scope of capital appreciation as opposed to simple dividend paying stocks or those with high yields. 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 appears as a winning strategy 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 revenues.
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 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 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.
Current Price Under $100: Low-priced stocks could be attractive as these will enable investors’ to buy more number of shares instead of just a handful of higher priced stocks for the same amount.
Here are five of the nine stocks that fit the bill:
Florida-based Superior Uniform Group (SGC - Free Report) manufactures and sells a wide range of uniforms, corporate I.D., career apparel and accessories for the hospital and healthcare fields; hotels; fast food and other restaurants; and public safety, industrial, transportation and commercial markets, as well as corporate and resort embroidered sportswear. The company has an estimated earnings growth rate of 10.40% for this year and has delivered an average positive earnings surprise of 24.66% in the past four quarters. The stock, currently trading at a price of $27.48, has a Zacks Rank #1 and a Growth Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.
Louisiana-based H&E Equipment Services Inc. (HEES - Free Report) is one of the largest integrated equipment services companies in the United States with full-service facilities throughout the Intermountain, Southwest, Gulf Coast & Southeast regions of the United States. It has delivered an average positive earnings surprise of 51.32% in the past four quarters. The stock has a Zacks Rank #1 and a Growth Score of A. Shares of HEES are currently trading at $39.19.
Delaware-based Chemours Company (CC - Free Report) provides performance chemicals in North America, the Asia Pacific, Europe, the Middle East, Africa, and Latin America. The company has seen positive earnings estimate revision of 7 cents over the past 30 days for this year and has an expected earnings growth rate of 40.58%. The stock, trading at $50.61, has a Zacks Rank #1 and a Growth Score of A.
California-based Applied Materials Inc. (AMAT - Free Report) provides manufacturing equipment, services, and software to the semiconductor, display, and related industries worldwide. The company has seen positive earnings estimate revision of a couple of cents over the past 30 days for the fiscal year (ending October 2018) and has an expected earnings growth rate of 35.69%. It has a Zacks Rank #1 and a Growth Score of A. The stock has a current price of $56.43.
Arizona-based Microchip Technology Incorporated (MCHP - Free Report) is engaged in developing, manufacturing and selling specialized semiconductor products used by customers for a wide variety of embedded control applications. The company has an estimated earnings growth rate of 8.07% for the year (ending March 2019) and delivered an average positive earnings surprise of 5.28% in the past four quarters. The stock has a Zacks Rank #2 and a Growth Score of A. It is currently trading at a price of $89.06.
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Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.
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