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5 Dividend Stocks That are Poised for Growth

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Amid volatility and low rate environment, dividend investing is a major source of consistent income though it doesn’t offer dramatic price appreciation. Stocks with a history of year-over-year dividend growth boast 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 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.

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.

Just these few criteria narrowed down the universe from over 7,700 stocks to just 22.

Here are five of the 22 stocks that fit the bill:

Atlanta-based PulteGroup Inc. PHM is engaged in homebuilding and financial services businesses, primarily in the United States. The company has seen positive earnings estimate revision of 24 cents over the past 30 days for this year. It has an expected earnings growth rate of 18.05%. It carries a Zacks Rank #1 and Growth Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.

California-based SYNNEX Corporation SNX is a business process services company providing business-to-business services to customers and business partners. The company has an estimated earnings growth rate of 5.35% for the current fiscal year (ending November 2020). It delivered positive earnings surprise of 10.55%, on average, in the past four quarters. The stock sports a Zacks Rank #1 and Growth Score of A.

Arizona-based Republic Services Inc. RSG is the second largest provider of non-hazardous solid waste collection, transfer, disposal, recycling, and energy services in the United States. It delivered positive earnings surprise of 3.58%, on average, over the past four quarters. It has seen upward earnings estimate revision of a couple of cents for this year over the past three months. The stock has a Zacks Rank #2 and a VGM Style Score of B.

California-based Lam Research Corporation LRCX designs, manufactures, markets and services semiconductor processing equipment used in the fabrication of integrated circuits. It has seen upward earnings estimate revision of 4 cents over the past 30 days for this year and has an expected earnings growth rate of 5.69%. Lam Research has a Zacks Rank #2 and a Growth Score of B.

Delaware-based Leidos Holdings Inc. (LDOS - Free Report) is a global science and technology leader that serves the defense, intelligence, civil and health markets. It has seen upward earnings estimate revision of 14 cents over the past 30 days for this year and has an expected earnings growth rate of 8.12%. 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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