Amid volatility and uncertainty, investors are honing in on stocks that not only offer dividends but also consistently increase their payout. This strategy leads to a healthy portfolio with a greater scope of capital appreciation as opposed to simple dividend paying stocks or those with high yields. Investors should note that dividend-paying securities are the major source of consistent income, when returns from the equity market are at risk.
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 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.
Current Price Under $100: Low-priced stocks could be attractive as these will enable investors to buy a greater number of shares instead of just a handful of higher-priced stocks for the same amount.
Here are five of the 10 stocks that fit the bill:
Wisconsin-based The Marcus Corporation MCS is engaged in the lodging and entertainment industries. The company has an estimated earnings growth rate of 3.93% for this year and delivered an average positive earnings surprise of 8.73% in the past four quarters. The stock, currently trading at a price of $41.11, has a Zacks Rank #1 and Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Massachusetts-based The TJX Companies Inc. TJX operates as an off-price apparel and home fashions retailer. The stock has an estimated earnings growth rate of 6.96% for the fiscal year ending January 2020 and delivered earnings surprises in the past four quarters, with an average beat of 8.13%. The stock has a Zacks Rank #2 and Growth Score of B. Shares of TJX are currently trading at $48.90.
Ohio-based The Progressive Corporation PGR 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 of 15 cents over the past 30 days for this year and has expected earnings growth rate of 13.35%. The stock, trading at $65.80, sports a Zacks Rank #1 and has a Growth Score of B.
Texas-based Nexstar Media Group Inc. NXST operates as a television broadcasting and digital media company in the United States. It focuses on the acquisition, development and operation of television stations and interactive community websites in medium-sized markets. The company delivered an average positive earnings surprise of 5.27% for the past four quarters. The stock, trading at $84.07, has a Zacks Rank #2 and Growth Score of B.
Arizona-based Pinnacle West Capital Corporation PNW is an investor-owned electric utility holding company. It has an estimated earnings growth rate of 8.1% for this year and delivered an average positive earnings surprise of 6.15% for the past four quarters. The stock has a Zacks Rank #2 and Growth Score of B. Shares of PNW are currently trading at $87.65.
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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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