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Dividend investing is once again in vogue thanks to growing political and geopolitical tensions as well as renewed concerns of trade war. In fact, investors are chasing both growth and income in their portfolio. This can be achieved by zeroing in on companies that not only offer dividends but have also have consistently increasing their payout.
Why Dividend Growth?
Stocks that have a strong history of dividend growth make an investor’s portfolio immune to large swings in stock prices in turbulent times, 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.
Additionally, these stocks pose a sustainable business model, a long track of profitability, rising cash flows, good liquidity, a strong balance sheet and some value characteristics. All these superior fundamentals make dividend growth a promising investment as opposed to their traditional dividend counterparts. Further, a history of strong dividend growth indicates that a future hike is likely. This makes the portfolio healthy and safe.
Furthermore, these have a long history of outperformance over the long term. When compared with the ones that pay out high yields, dividend growth stocks form a healthy portfolio, with more scope for capital appreciation. However, it does not necessarily mean that they have the highest yields.
Here are the screening parameters that could result in a winning dividend growth portfolio:
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.
Here are five of the 14 stocks that fit the bill:
Texas-based Westlake Chemical Corporation WLK is a vertically integrated international manufacturer and supplier of petrochemicals, polymers and fabricated products. It has seen solid earnings estimate revision of 22 cents for this year over the past one month and has an expected earnings growth rate of 55.67%. The stock has a Zacks Rank #1 and a Growth Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.
Massachusetts-based MKS Instruments Inc. MKSI is a leading worldwide developer, manufacturer and supplier of instruments, components and subsystems used to measure, control and analyze gases in semiconductor manufacturing and similar industrial manufacturing processes. The company has seen positive earnings estimate revision of four cents over the last 30 days for this year and has an expected earnings growth rate of 41.28%. It has a Zacks Rank #2 and a Growth Score of A.
Indiana-based Anthem Inc. ANTM operates as a health benefits company in the United States. The stock has seen positive earnings estimate revision of four cents over the past 90 days for this year with an expected earnings growth rate of 27.74%. The stock has a Zacks Rank #2 and a Growth Score of A.
Canada-based Magna International Inc. MGA is an independent supplier of original equipment components, assemblies, modules and systems and related tooling for cars and light trucks. It has seen positive earnings estimate revision of 31 cents for this year over the past one month and has an expected earnings growth rate of 17.79%. The stock has a Zacks Rank #2 and a Growth Score of B.
California-based Tetra Tech Inc. TTEK is a leading provider of consulting, engineering, program management, construction management, and technical services. It has seen positive earnings estimate revision of seven cents for the fiscal year (ending September 2018) over the last 30 days, with an expected earnings growth rate of 21.60%. The stock has a Zacks Rank #2 and a 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.
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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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MKS Instruments, Inc. (MKSI) : Free Stock Analysis Report
Magna International Inc. (MGA) : Free Stock Analysis Report
Westlake Chemical Corporation (WLK) : Free Stock Analysis Report
Anthem, Inc. (ANTM) : Free Stock Analysis Report
Tetra Tech, Inc. (TTEK) : Free Stock Analysis Report
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