Amid volatility and uncertainty, investors are looking for both income and growth in their portfolio. This can easily be achieved by honing in on stocks that not only offer dividends but also consistently increase their payout.
Dividend Growth: A Winning Strategy
Stocks that have a strong history of dividend growth as opposed to those that have high yields form a healthy portfolio with more scope for capital appreciation. This is because these stocks act as a hedge against economic or political uncertainty as well as stock market volatility. Simultaneously, these offer outsized payouts or sizable yields on a regular basis irrespective of the market direction.
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 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.
Here are five of the 19 stocks that fit the bill:
California-based Intel (INTC - Free Report) is one of the world's largest semiconductor chip maker. The company delivered an average positive earnings surprise of 18.73% over the past four quarters and has an expected earnings growth rate of 30.92%. It flaunts a Zacks Rank #1 and Growth Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.
Wisconsin-based The Marcus Corporation (MCS - Free Report) is engaged in the lodging and entertainment industries. The company has an estimated earnings growth rate of 22.08% for this year and has delivered an average positive earnings surprise of 8.73% in the past four quarters. The stock has a Zacks Rank #2 and Growth Score of A.
Texas-based BG Staffing Inc (BGSF - Free Report) is a national provider of temporary staffing services across a diverse set of industries. Its earnings are expected to grow 68.32% this year and delivered earnings surprises in the past four quarters, with an average beat of 53.80%. 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 by a penny over the past seven days for this year and has expected earnings growth rate of 80.99%. The stock sports a Zacks Rank #2 and has a Growth Score of A.
Indiana-based Anthem Inc. (ANTM - Free Report) operates as a health benefits company in the United States. The company has an estimated earnings growth rate of 30.1% for this year and delivered an average positive earnings surprise of 5.11% in the past four quarters. The stock 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.