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Rising yields have somewhat dulled the appeal for dividend investing. Yet, stocks that consistently pay higher dividend are in vogue, as these tend to be high in quality and offer strong growth potential even in volatile patches.
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. At the same time, these offer downside protection with their consistent increase in payouts.
These stocks have superior fundamentals as opposed to their traditional dividend counterparts such as a sustainable business model, a long track record of profitability, rising cash flows, good liquidity, strong balance sheet and some value characteristics. They have a history of outperformance over the long term but not necessarily high dividend yields. All these makes dividend growth a quality and promising investment metric for the long term.
Further, a history of strong dividend growth indicates that dividend increase in the future is likely. This makes the portfolio healthy and safe. Though these stocks have a long history of outperformance compared with the broader stock market or any other dividend paying stock, it does not necessarily mean that they have the highest yields.
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 Style 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.
P/E Ratio Less than X-Industry: A ratio less than X-industry indicates that the stock is cheap and undervalued in that industry.
Here are five of the 10 stocks that fit the bill:
Owens Corning Inc. (OC - Free Report) : This Ohio-based company is a world leader in building materials systems and composite solutions. It is expected to see earnings growth of 17.96% this year and has a P/E ratio of 18.28 versus the industry average of 19.28. Owens Corning has a Zacks Rank #2 and a Growth Style Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.
Intuit Inc. (INTU - Free Report) : This California-based company provides financial management and compliance products and services for small businesses, consumers, self-employed, and accounting professionals. The company has a P/E ratio of 28.58 compared with the industry average of 30.49 and its earnings are expected to grow 12.45% this fiscal year. It has a Zacks Rank #2 and a Growth Style Score of B.
Magna International Inc. (MGA - Free Report) : This Canada-based company is an independent supplier of original equipment components, assemblies, modules and systems and related tooling for cars and light trucks. Its earnings are expected to grow 14.66% this year while its P/E ratio stands at 9.10 compared with industry average of 13.62. The stock has a Zacks Rank #2 and a Growth Style Score of B.
Vishay Intertechnology, Inc. (VSH - Free Report) : This Pennsylvania-based company is a global manufacturer and supplier of discrete semiconductors and passive components. It is expected to see earnings growth of 57.26% this year and has a P/E ratio of 14.40 versus the industry average of 16.44. The stock has a Zacks Rank #2 and a Growth Style Score of B.
Huntington Ingalls Industries Inc. (HII - Free Report) : This Virginia-based company is engaged in designing, building, overhauling, and repairing ships primarily for the U.S. Navy and the U.S. Coast Guard. The company has a P/E ratio of 19.84 compared with the industry average of 21.02 and its earnings are expected to grow 14.19% for this year. It has a Zacks Rank #2 and a Growth Style Score of A.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
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5 Top-Ranked Dividend Growth Stocks On Sale
Rising yields have somewhat dulled the appeal for dividend investing. Yet, stocks that consistently pay higher dividend are in vogue, as these tend to be high in quality and offer strong growth potential even in volatile patches.
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. At the same time, these offer downside protection with their consistent increase in payouts.
These stocks have superior fundamentals as opposed to their traditional dividend counterparts such as a sustainable business model, a long track record of profitability, rising cash flows, good liquidity, strong balance sheet and some value characteristics. They have a history of outperformance over the long term but not necessarily high dividend yields. All these makes dividend growth a quality and promising investment metric for the long term.
Further, a history of strong dividend growth indicates that dividend increase in the future is likely. This makes the portfolio healthy and safe. Though these stocks have a long history of outperformance compared with the broader stock market or any other dividend paying stock, it does not necessarily mean that they have the highest yields.
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 Style 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.
P/E Ratio Less than X-Industry: A ratio less than X-industry indicates that the stock is cheap and undervalued in that industry.
Here are five of the 10 stocks that fit the bill:
Owens Corning Inc. (OC - Free Report) : This Ohio-based company is a world leader in building materials systems and composite solutions. It is expected to see earnings growth of 17.96% this year and has a P/E ratio of 18.28 versus the industry average of 19.28. Owens Corning has a Zacks Rank #2 and a Growth Style Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.
Intuit Inc. (INTU - Free Report) : This California-based company provides financial management and compliance products and services for small businesses, consumers, self-employed, and accounting professionals. The company has a P/E ratio of 28.58 compared with the industry average of 30.49 and its earnings are expected to grow 12.45% this fiscal year. It has a Zacks Rank #2 and a Growth Style Score of B.
Magna International Inc. (MGA - Free Report) : This Canada-based company is an independent supplier of original equipment components, assemblies, modules and systems and related tooling for cars and light trucks. Its earnings are expected to grow 14.66% this year while its P/E ratio stands at 9.10 compared with industry average of 13.62. The stock has a Zacks Rank #2 and a Growth Style Score of B.
Vishay Intertechnology, Inc. (VSH - Free Report) : This Pennsylvania-based company is a global manufacturer and supplier of discrete semiconductors and passive components. It is expected to see earnings growth of 57.26% this year and has a P/E ratio of 14.40 versus the industry average of 16.44. The stock has a Zacks Rank #2 and a Growth Style Score of B.
Huntington Ingalls Industries Inc. (HII - Free Report) : This Virginia-based company is engaged in designing, building, overhauling, and repairing ships primarily for the U.S. Navy and the U.S. Coast Guard. The company has a P/E ratio of 19.84 compared with the industry average of 21.02 and its earnings are expected to grow 14.19% for this year. It has a Zacks Rank #2 and a Growth Style Score of A.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »