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Bouts of volatility and uncertainty in the stock market have compelled investors to search for consistent income. In this regard, nothing is better than dividend investing. Though the strategy doesn’t offer dramatic price appreciation, it is a major source of consistent income for investors in any type of market.
While there are several dividend stocks, honing in on those with a history of dividend growth leads to a healthy portfolio, with greater scope of capital appreciation as opposed to simple dividend-paying stocks or those with high yields.
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.
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:
Texas-based Diamondback Energy Inc. (FANG - Free Report) is an independent oil and gas exploration & production company, with its primary focus on the Permian Basin. The company saw solid earnings estimate revision of 41 cents over the past 30 days for this year and has an estimated earnings growth rate of 196.7%. The stock has a Zacks Rank #1 and Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Las Vegas-based Boyd Gaming Corporation (BYD - Free Report) is a multi-jurisdictional gaming company. It owns and operates gaming entertainment properties in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana, Mississippi, Missouri, Ohio and Pennsylvania. The company has an estimated earnings growth rate of more than 100% for this year and delivered an average earnings surprise of 76.7% for the past four quarters. Boyd Gaming has a Zacks Rank #2 and Growth Score of A.
California-based Avery Dennison Corporation (AVY - Free Report) produces pressure-sensitive materials, and a variety of tickets, tags, labels and other converted products. The company saw positive earnings estimate revision of 15 cents over the past 30 days for this year and has an estimated earnings growth rate of 23.1%. The stock has a Zacks Rank #2 and Growth Score of B.
California-based Intuit Inc. (INTU - Free Report) is a business and financial software company that develops and sells financial, accounting and tax preparation software and related services for small businesses, consumers and accounting professionals globally. The company has an expected earnings growth rate of 18.9% for the fiscal year (ending Jul 2021) and delivered an earnings surprise of 49.7%, on average, in the past four quarters. The stock has a Zacks Rank #1 and Growth Score of B.
Tennessee-based FedEx Corporation (FDX - Free Report) is a global transportation and logistics enterprise that offers customers a one-stop source for global shipping, logistics and supply chain solutions. The company has seen upward earnings estimate revision of 74 cents over the past 30 days for the fiscal year (ending May 2022) and has an estimated earnings growth rate of 16.1%. It has a Zacks Rank #2 and Growth Score of B.
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 Solid Dividend Growth Picks for the Second Half
Bouts of volatility and uncertainty in the stock market have compelled investors to search for consistent income. In this regard, nothing is better than dividend investing. Though the strategy doesn’t offer dramatic price appreciation, it is a major source of consistent income for investors in any type of market.
While there are several dividend stocks, honing in on those with a history of dividend growth leads to a healthy portfolio, with greater scope of capital appreciation as opposed to simple dividend-paying stocks or those with high yields.
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.
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:
Texas-based Diamondback Energy Inc. (FANG - Free Report) is an independent oil and gas exploration & production company, with its primary focus on the Permian Basin. The company saw solid earnings estimate revision of 41 cents over the past 30 days for this year and has an estimated earnings growth rate of 196.7%. The stock has a Zacks Rank #1 and Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Las Vegas-based Boyd Gaming Corporation (BYD - Free Report) is a multi-jurisdictional gaming company. It owns and operates gaming entertainment properties in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana, Mississippi, Missouri, Ohio and Pennsylvania. The company has an estimated earnings growth rate of more than 100% for this year and delivered an average earnings surprise of 76.7% for the past four quarters. Boyd Gaming has a Zacks Rank #2 and Growth Score of A.
California-based Avery Dennison Corporation (AVY - Free Report) produces pressure-sensitive materials, and a variety of tickets, tags, labels and other converted products. The company saw positive earnings estimate revision of 15 cents over the past 30 days for this year and has an estimated earnings growth rate of 23.1%. The stock has a Zacks Rank #2 and Growth Score of B.
California-based Intuit Inc. (INTU - Free Report) is a business and financial software company that develops and sells financial, accounting and tax preparation software and related services for small businesses, consumers and accounting professionals globally. The company has an expected earnings growth rate of 18.9% for the fiscal year (ending Jul 2021) and delivered an earnings surprise of 49.7%, on average, in the past four quarters. The stock has a Zacks Rank #1 and Growth Score of B.
Tennessee-based FedEx Corporation (FDX - Free Report) is a global transportation and logistics enterprise that offers customers a one-stop source for global shipping, logistics and supply chain solutions. The company has seen upward earnings estimate revision of 74 cents over the past 30 days for the fiscal year (ending May 2022) and has an estimated earnings growth rate of 16.1%. It has a Zacks Rank #2 and Growth Score of B.
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.