September is historically a weak month for the stock market and even worse in the mid-term election years. In such a scenario, honing in on dividend growth stocks seem to the best strategy. This is because investors can enjoy rising current income while anticipating capital appreciation, irrespective of market conditions.
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 a 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 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 six of the 16 stocks that fit the bill:
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 company has seen solid earnings estimate revision of 5 cents over the past 30 days for this year and has an expected earnings growth rate of 31.46%. The stock 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.
Washington-based Microsoft Corporation (MSFT - Free Report) is engaged in developing, licensing, and supporting software products, services and devices worldwide. It delivered an average positive earnings surprise of 11.42% in the past four quarters and has an expected earnings growth rate of 9.54% for the fiscal year (ending June 2019). The stock has a Zacks Rank #2 and Growth Score of B.
New York-based Broadridge Financial Solutions Inc. (BR - Free Report) is a leading global provider of technology-based outsourcing solutions to the financial services industry. It has seen positive earnings estimate revision of 17 cents over the past one month for the fiscal year (ending June 2019), with expected earnings growth of 3.43%. The stock has a Zacks Rank #2 and Growth Score of A.
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 11 cents over the past 30 days for this year and has expected earnings growth rate of 71.1%. It sports a Zacks Rank #1 and has a Growth Score of B.
Michigan-based Penske Automotive Group, Inc. (PAG - Free Report) is a leading acquirer, consolidator and operator of franchised automobile and light truck dealerships and related businesses. The company saw positive earnings estimate revision of a penny over the past 30 days for this year and has an expected earnings growth rate of 24.13%. It has a Zacks Rank #2 and Growth Score of A.
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. It has delivered an average positive earnings surprise of 20.49% in the past four quarters and is expected to deliver earnings growth of 40.92% this year. The stock has a Zacks Rank #2 and Growth Score of A.
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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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