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Choosing stocks that generate income in uncertain times is a no-brainer. Not only does the income offset losses from your investment, but it also supports stock prices. That’s because dividends are often used for buying more stock when prices fall. And when more stock is bought, prices rise again.
But the real challenge is in selecting these stocks. And in understanding why we are choosing what we’re choosing.
In general, a dividend paying stock belongs to a more mature company. By that we mean that the company generates sufficient cash to pay a dividend and still has enough left over to invest in its growth initiatives. And getting to this stage takes time.
Alternatively, it has limited growth opportunities and therefore pays out most of what it makes to its shareholders.
Now both these options may be good when you’re investing for the short term. But when it’s for a longer period of time, which is really ideal because that’s when you get to see some real capital appreciation as well, that’s when it’s better to opt for companies that also have growth potential.
Because with no growth ahead of it, there will be no chances of growing the dividend stream. And if the dividend stream doesn’t grow, the real income is obviously lower over time.
One sure sign that the company is still growing is the revenue growth trajectory in the last few years. While earnings growth is also a positive, there are many situations in which a company is able to generate earnings growth without growing the revenue. Earnings growth without revenue growth is basically an indicator of poor quality of earnings because it is not sustainable. Cost cutting or increased efficiencies can only go so far.
So putting all that together we come up with a few criteria that are a must when choosing dividend-paying stocks. First, we want companies that are neither too young nor too mature, preferably with a market cap of over $2 billion. Second, we want to ensure that the dividend has been growing in recent history, say for the last five years.
Third, it offers an attractive yield (dividend per share/price per share) indicating that you’re not paying too much for what you’re making. And fourth, the company has been generating sales growth in the last few years. We can add the Zacks stock Rank to the mix, because stocks ranked #1 (Strong Buy) or #2 (Buy) have historically shown good short-term upside potential.
If the company belongs to an industry in the top 50% of Zacks-classified industries, all the better, because that again increases the chances of upside potential. And finally, it’s best to check for a Value Score of A to make sure you’re avoiding the value traps.
The following stocks satisfy all the above criteria-
Through its 175 retail locations and membership clubs across 38 U.S. states and ecommerce platforms, Camping World Holdings offers services, protection plans, products and resources for recreational vehicle (RV) enthusiasts under the Camping World and Good Sam brands. It offers new and used RVs for sale, vehicle finance, service and maintenance, roadside assistance and other services.
It also offers equipment, gear and supplies for camping, hunting, fishing, skiing, snowboarding, bicycling, skateboarding, marine and watersports, as well as other outdoor activities. Camping World Holdings is based in Lincolnshire, United States.
Camping World has a Zacks Rank #2, a Value Score of A and belongs to the Leisure and Recreation Services industry (top 35%).
Camping World has a 5-year historical dividend growth rate of 19.34% and its current dividend yields 5.15%.
The company has generated average sales growth of 11.5% in the last five years.
Triton International Ltd.
Triton International was formed following the July 12, 2016 all-stock merger between Triton Container International Limited and TAL International Group. Triton International, based in Hamilton, Bermuda, is the largest lessor of intermodal containers (large steel boxes that are used for transporting freight by ship/rail/truck). The company also offers leasing chassis, which are used for transporting containers.
Triton International has a Zacks Rank #2 and Value Score of A. It belongs to the Transportation - Equipment and Leasing industry (top 40%).
Triton International ‘s historical performance is underpinned by its steady sales growth of 8.0% that has enabled steady dividend increase of 4.42%. The current dividend yields 4.42%.
United Bankshares is a bank holding company whose business is the operation of its bank subsidiaries. All of United's subsidiary banks are full-service commercial banks. Included among the banking services offered are the acceptance of deposits in checking, savings, time and money market accounts; the making and servicing of personal, commercial, floor plan and student loans; and the making of construction and real estate loans. Also offered are individual retirement accounts, safe deposit boxes, wire transfers and other standard banking products and services.
United Bankshares has a Zacks Rank #2 and Value Score of B. It belongs to the Banks - Southeast industry (top 14%).
In the last five years, United Bankshares’ sales have growth 16.5%, supporting dividend growth of 1.42%. Its current dividend yields 4.08%.
Fulton Financial Corp. is a bank holding company. It provides retail and commercial banking and investment management and trust services in central and eastern Pennsylvania, southern New Jersey, northern Maryland and southern Delaware through its wholly-owned subsidiaries: Fulton Bank, Lebanon Valley Farmers Bank, Swineford National Bank, Lafayette Ambassador Bank, FNB Bank, N.A., Great Valley Bank, Hagerstown Trust Company, Delaware National Bank, The Bank of Gloucester County, The Woodstown National Bank & Trust Company, and The Peoples Bank of Elkton.
Fulton Financial’s shares carry a Zacks Rank #2 and Value Score B. It belongs to the Banks - Northeast industry (top 17%).
Fulton Financial has grown its dividend by 6.21% in the last five years and currently pays a dividend that yields 3.35%.
Fulton Financial’s revenues have grown 5.4% in the last five years.
Delaware, OH-based Greif is a leading global producer of industrial packaging products and services with manufacturing facilities located in over 40 countries. It offers a comprehensive line of rigid industrial packaging products and containerboard and corrugated products for niche markets in North America. It is also a leading global producer of flexible intermediate bulk containers.
Greif has a Zacks Rank #1 and Value Score of A. It belongs to the Containers - Paper and Packaging industry (top 42%). Greif’s 5-year historical dividend growth is 1.35% and its current dividend yields 3.22%.
Greif has generated average sales growth of 9.64% in the last five years.
3-Month Price Movement
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5 Cheap Dividend Stocks to Buy and Hold This Year
Choosing stocks that generate income in uncertain times is a no-brainer. Not only does the income offset losses from your investment, but it also supports stock prices. That’s because dividends are often used for buying more stock when prices fall. And when more stock is bought, prices rise again.
But the real challenge is in selecting these stocks. And in understanding why we are choosing what we’re choosing.
In general, a dividend paying stock belongs to a more mature company. By that we mean that the company generates sufficient cash to pay a dividend and still has enough left over to invest in its growth initiatives. And getting to this stage takes time.
Alternatively, it has limited growth opportunities and therefore pays out most of what it makes to its shareholders.
Now both these options may be good when you’re investing for the short term. But when it’s for a longer period of time, which is really ideal because that’s when you get to see some real capital appreciation as well, that’s when it’s better to opt for companies that also have growth potential.
Because with no growth ahead of it, there will be no chances of growing the dividend stream. And if the dividend stream doesn’t grow, the real income is obviously lower over time.
One sure sign that the company is still growing is the revenue growth trajectory in the last few years. While earnings growth is also a positive, there are many situations in which a company is able to generate earnings growth without growing the revenue. Earnings growth without revenue growth is basically an indicator of poor quality of earnings because it is not sustainable. Cost cutting or increased efficiencies can only go so far.
So putting all that together we come up with a few criteria that are a must when choosing dividend-paying stocks. First, we want companies that are neither too young nor too mature, preferably with a market cap of over $2 billion. Second, we want to ensure that the dividend has been growing in recent history, say for the last five years.
Third, it offers an attractive yield (dividend per share/price per share) indicating that you’re not paying too much for what you’re making. And fourth, the company has been generating sales growth in the last few years. We can add the Zacks stock Rank to the mix, because stocks ranked #1 (Strong Buy) or #2 (Buy) have historically shown good short-term upside potential.
If the company belongs to an industry in the top 50% of Zacks-classified industries, all the better, because that again increases the chances of upside potential. And finally, it’s best to check for a Value Score of A to make sure you’re avoiding the value traps.
The following stocks satisfy all the above criteria-
Camping World Holdings (CWH - Free Report)
Through its 175 retail locations and membership clubs across 38 U.S. states and ecommerce platforms, Camping World Holdings offers services, protection plans, products and resources for recreational vehicle (RV) enthusiasts under the Camping World and Good Sam brands. It offers new and used RVs for sale, vehicle finance, service and maintenance, roadside assistance and other services.
It also offers equipment, gear and supplies for camping, hunting, fishing, skiing, snowboarding, bicycling, skateboarding, marine and watersports, as well as other outdoor activities. Camping World Holdings is based in Lincolnshire, United States.
Camping World has a Zacks Rank #2, a Value Score of A and belongs to the Leisure and Recreation Services industry (top 35%).
Camping World has a 5-year historical dividend growth rate of 19.34% and its current dividend yields 5.15%.
The company has generated average sales growth of 11.5% in the last five years.
Triton International Ltd.
Triton International was formed following the July 12, 2016 all-stock merger between Triton Container International Limited and TAL International Group. Triton International, based in Hamilton, Bermuda, is the largest lessor of intermodal containers (large steel boxes that are used for transporting freight by ship/rail/truck). The company also offers leasing chassis, which are used for transporting containers.
Triton International has a Zacks Rank #2 and Value Score of A. It belongs to the Transportation - Equipment and Leasing industry (top 40%).
Triton International ‘s historical performance is underpinned by its steady sales growth of 8.0% that has enabled steady dividend increase of 4.42%. The current dividend yields 4.42%.
United Bankshares (UBSI - Free Report)
United Bankshares is a bank holding company whose business is the operation of its bank subsidiaries. All of United's subsidiary banks are full-service commercial banks. Included among the banking services offered are the acceptance of deposits in checking, savings, time and money market accounts; the making and servicing of personal, commercial, floor plan and student loans; and the making of construction and real estate loans. Also offered are individual retirement accounts, safe deposit boxes, wire transfers and other standard banking products and services.
United Bankshares has a Zacks Rank #2 and Value Score of B. It belongs to the Banks - Southeast industry (top 14%).
In the last five years, United Bankshares’ sales have growth 16.5%, supporting dividend growth of 1.42%. Its current dividend yields 4.08%.
Fulton Financial (FULT - Free Report)
Fulton Financial Corp. is a bank holding company. It provides retail and commercial banking and investment management and trust services in central and eastern Pennsylvania, southern New Jersey, northern Maryland and southern Delaware through its wholly-owned subsidiaries: Fulton Bank, Lebanon Valley Farmers Bank, Swineford National Bank, Lafayette Ambassador Bank, FNB Bank, N.A., Great Valley Bank, Hagerstown Trust Company, Delaware National Bank, The Bank of Gloucester County, The Woodstown National Bank & Trust Company, and The Peoples Bank of Elkton.
Fulton Financial’s shares carry a Zacks Rank #2 and Value Score B. It belongs to the Banks - Northeast industry (top 17%).
Fulton Financial has grown its dividend by 6.21% in the last five years and currently pays a dividend that yields 3.35%.
Fulton Financial’s revenues have grown 5.4% in the last five years.
Greif Inc. (GEF - Free Report)
Delaware, OH-based Greif is a leading global producer of industrial packaging products and services with manufacturing facilities located in over 40 countries. It offers a comprehensive line of rigid industrial packaging products and containerboard and corrugated products for niche markets in North America. It is also a leading global producer of flexible intermediate bulk containers.
Greif has a Zacks Rank #1 and Value Score of A. It belongs to the Containers - Paper and Packaging industry (top 42%). Greif’s 5-year historical dividend growth is 1.35% and its current dividend yields 3.22%.
Greif has generated average sales growth of 9.64% in the last five years.
3-Month Price Movement