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Dividend stocks are in demand given investors’ drive for higher income. In particular, the Fed has turned patient on rates hike this year, pushing bond yields lower and thus raising the appeal for dividend-paying stocks.
While there are several dividend stocks that could provide capital appreciation, honing in on stocks with a history of dividend growth 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 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.
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 City-based Foot Locker Inc. (FL - Free Report) is a leading global retailer of athletically inspired shoes and apparel. The company has a P/E ratio of 11.47 compared with the industry average of 13.06 and an expected earnings growth rate of 10.40% for fiscal year (ending January 2020). The stock sports a Zacks Rank #1 and has Growth Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.
Massachusetts-based Thermo Fisher Scientific Inc. (TMO - Free Report) ) is a provider of analytical instruments, equipment, reagents and consumables, software, and services for research, manufacturing, analysis, discovery, and diagnostics worldwide. It has a P/E ratio of 21.31 compared with the industry average of 32.10 and an expected earnings growth rate of 9.35% for this year. The stock has a Zacks Rank #2 and Growth Score of B.
Connecticut-based SS&C Technologies Holdings Inc. (SSNC - Free Report) delivers investment and financial management software and related services, focused exclusively on the financial services industry. The company has a P/E ratio of 17.05 compared with the industry average of 31.02. Its earnings are expected to grow 30.48% this year. The stock has a Zacks Rank #2 and Growth Score of A.
Oregon-based Columbia Sportswear Company (COLM - Free Report) is a global leader in design, sourcing, marketing and distribution of active outdoor apparel and footwear, with operations in North America, Europe and Asia. Its earnings are expected to grow 10.47% this year while its P/E ratio stands at 22.99 compared with the industry average of 14.81. The stock has a Zacks Rank #1 and Growth Score of A.
Pennsylvania-based Comcast Corporation (CMCSA - Free Report) is a global media and technology company with two primary businesses, Comcast Cable and NBCUniversal. The company has a P/E ratio of 14.78 compared with the industry average of 24.72. Its earnings are expected to grow 11.37% this year. It has a Zacks Rank #2 and Growth 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.
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5 Top-Ranked Cheap Dividend Growth Stocks
Dividend stocks are in demand given investors’ drive for higher income. In particular, the Fed has turned patient on rates hike this year, pushing bond yields lower and thus raising the appeal for dividend-paying stocks.
While there are several dividend stocks that could provide capital appreciation, honing in on stocks with a history of dividend growth 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 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.
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 City-based Foot Locker Inc. (FL - Free Report) is a leading global retailer of athletically inspired shoes and apparel. The company has a P/E ratio of 11.47 compared with the industry average of 13.06 and an expected earnings growth rate of 10.40% for fiscal year (ending January 2020). The stock sports a Zacks Rank #1 and has Growth Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.
Massachusetts-based Thermo Fisher Scientific Inc. (TMO - Free Report) ) is a provider of analytical instruments, equipment, reagents and consumables, software, and services for research, manufacturing, analysis, discovery, and diagnostics worldwide. It has a P/E ratio of 21.31 compared with the industry average of 32.10 and an expected earnings growth rate of 9.35% for this year. The stock has a Zacks Rank #2 and Growth Score of B.
Connecticut-based SS&C Technologies Holdings Inc. (SSNC - Free Report) delivers investment and financial management software and related services, focused exclusively on the financial services industry. The company has a P/E ratio of 17.05 compared with the industry average of 31.02. Its earnings are expected to grow 30.48% this year. The stock has a Zacks Rank #2 and Growth Score of A.
Oregon-based Columbia Sportswear Company (COLM - Free Report) is a global leader in design, sourcing, marketing and distribution of active outdoor apparel and footwear, with operations in North America, Europe and Asia. Its earnings are expected to grow 10.47% this year while its P/E ratio stands at 22.99 compared with the industry average of 14.81. The stock has a Zacks Rank #1 and Growth Score of A.
Pennsylvania-based Comcast Corporation (CMCSA - Free Report) is a global media and technology company with two primary businesses, Comcast Cable and NBCUniversal. The company has a P/E ratio of 14.78 compared with the industry average of 24.72. Its earnings are expected to grow 11.37% this year. It has a Zacks Rank #2 and Growth 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.