Volatility and uncertainty in the stock market has raised the appeal for dividend growth stocks. 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.
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.
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 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.
Here are five of the 11 stocks that fit the bill:
Ohio-based The Progressive Corporation (PGR - Free Report) provides personal and commercial auto insurance, residential property insurance, and other specialty property-casualty insurance and related services primarily in the United States. The company has seen positive earnings estimate revision of 14 cents over the past 30 days for this year and has an expected earnings growth rate of 60.08%. It sports a Zacks Rank #1 and a Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Texas-based Brinker International Inc. (EAT - Free Report) is one of the world's leading casual dining restaurant companies. Brinker International owns, operates, franchises or is involved in the ownership of restaurants under the names Chili's Grill & Bar and Maggiano's Little Italy. It delivered an average positive earnings surprise of 7.22% in the past four quarters and has an expected earnings growth rate of 6.02% for the fiscal (ending June 2019). It has a Zacks Rank #2 and Growth Score of A.
Illinois-based AbbVie Inc. (ABBV - Free Report) is a global research-based biopharmaceutical company, which discovers, develops, manufactures and sells pharmaceutical products worldwide. The company delivered an average positive earnings surprise of 2.39% in the last four quarters and has an expected earnings growth rate of 39.29% for this year. It has a Zacks Rank #2 and Growth Score of B.
Pennsylvania-based Vishay Intertechnology Inc. (VSH - Free Report) is a global manufacturer and supplier of discrete semiconductors and passive components. It saw positive earnings estimate revision of a penny over the past 30 days for this year with an expected earnings growth of 25.17%. The stock has a Zacks Rank #1 and Growth Score of B.
Hawaii-based Matson Inc. (MATX - Free Report) operates as an ocean transportation and logistics company. It offers shipping services in Hawaii, Guam, and Micronesia islands and expedited service from China to southern California. The stock saw positive earnings estimate revision of a couple of cents over the past 30 days for this year and has an expected earnings growth rate of 24.16%. It has a Zacks Rank #2 and Growth Score of B.
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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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