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5 Solid Dividend Growth Stocks for Higher Returns

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Amid volatility and lower rates, the appeal for dividend investing is on the rise. Dividend-paying securities are a major source of consistent income for investors when returns from the equity market are at risk. This is because investors can enjoy rising current income while anticipating capital appreciation irrespective of market conditions.

Additionally, stocks with a strong history of dividend growth year over year form a healthy portfolio with a greater scope of capital appreciation as opposed to simple dividend-paying stocks or those that have high yields.

Inside Dividend Growth Strategy

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 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 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.

Just these few criteria narrowed down the universe from over 7,700 stocks to just 18.

Here are five of the 18 stocks that fit the bill:

Minnesota-based Target Corporation (TGT - Free Report) operates large-format general merchandise and food discount stores in the United States, which include Target and SuperTarget. It delivered an average positive earnings surprise of 4.54% for the past four quarters and has an expected earnings growth rate of 14.10% for fiscal year (ending January 2020). The stock carries a Zacks Rank #1 and has a Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ohio-based Owens Corning Inc. (OC - Free Report) is a world leader in building materials systems and composite solutions. The company saw positive earnings estimate revision by a penny over the past 30 days for this year and delivered an average positive earnings surprise of 2.35% in the past four quarters. Owens Corning has a Zacks Rank #2 and Growth Score of B.

Virginia-based Booz Allen Hamilton Holding Corporation (BAH - Free Report) is engaged in providing management and technology consulting services to the U.S. government in the defense, intelligence and civil markets. It has seen positive earnings estimate revision of a penny over the past one month for fiscal year (ending March 2020) and has an expected earnings growth rate of 11.23%. Booz Allen has a Zacks Rank #1 and Growth Score of B.

Ireland-based Medtronic plc (MDT - Free Report) develops, manufactures, distributes and sells device-based medical therapies to hospitals, physicians, clinicians and patients worldwide. It has seen positive earnings estimate revision of 8 cents for this year over the past one month for fiscal year (ending April 2020) and delivered an average positive earnings surprise of 5.83% in the past four quarters. The stock has a Zacks Rank #2 and Growth Score of B.

Pennsylvania-based Dick's Sporting Goods Inc. (DKS - Free Report) is a leading full-line sporting goods retailer in the United States. The company has an estimated earnings growth rate of 4.32% for fiscal year (ending January 2020) and delivered an average positive earnings surprise of 13.41% for the past four quarters. 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.