Amid bouts of volatility and uncertainty, investors are seeking consistent and safe income thereby driving the appeal for dividend investing. Investors can enjoy rising current income while anticipating capital appreciation irrespective of market conditions.
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.
Peep Into the Strategy
Stocks that have a strong history of dividend growth generally act as a hedge against economic or political uncertainty as these belong to mature companies, which are less susceptible to large swings in the market while simultaneously offer downside protection with their consistent increase in payouts.
These stocks pose a sustainable business model, a long track of profitability, rising cash flows, good liquidity, a strong balance sheet and some value characteristics. All these superior fundamentals make dividend growth a promising investment as opposed to their traditional dividend counterparts. Further, a history of strong dividend growth indicates that a future hike is likely. This makes the portfolio healthy and safe.
Furthermore, these have a long history of outperformance over the long term. However, it does not necessarily mean that they have the highest yields.
Here are the screening parameters that could result in a winning dividend growth portfolio:
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 13 stocks that fit the bill:
Wisconsin-based The Marcus Corporation (MCS - Free Report) is engaged in the lodging and entertainment industries. The company delivered an average positive earnings surprise of 34.73% in the past four quarters. The stock has a Zacks Rank #1 and Growth Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.
Lowa-based Caseys General Stores Inc. (CASY - Free Report) operates convenience stores under the Casey's and Casey's General Store names. The company has seen positive earnings estimate revision of 4 cents over the past 30 days for the fiscal year (ending April 2020) and an expected earnings growth rate of 5.30%. It 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. The company saw solid earnings estimate revision of 17 cents over the past 30 days for this year and has an expected earnings growth rate of 13.47%. The stock has a Zacks Rank #2 and Growth Score of A.
California-based Intuit Inc. (INTU - Free Report) provides financial management and compliance products and services for small businesses, consumers, self-employed and accounting professionals. The company has an estimated earnings growth rate of 17.11% for fiscal year (ended August 2019) and delivered an average positive earnings surprise of 55.57% for the past four quarters. The stock has a Zacks Rank #2 and Growth Score of A.
Massachusetts-based LPL Financial Holdings Inc. (LPLA - Free Report) is engaged in providing an integrated platform of brokerage and investment advisory services to independent financial advisors and financial advisors at financial institutions in the United States. The stock saw solid earnings estimate revision of 44 cents for this year over the past 90 days and has an expected earnings growth rate of 29.46%. It 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.