5 Excellent Dividend Growth Stocks to Buy Now
Dividend investing remains a popular strategy. Though the strategy doesn’t offer dramatic price appreciation, it is a major source of consistent income for investors in any type of market. This approach offers a unique blend of income and growth potential, appealing to a broad range of investors.
Additionally, it can provide a sense of security in times of market uncertainty or downturns, as dividend-paying stocks can reduce the volatility of a portfolio and tend to outperform in a choppy market. In particular, focusing on the growth level in this strategy leads to higher returns.
Stocks with a strong history of year-over-year dividend growth form a healthy portfolio with a greater scope of capital appreciation, as opposed to simple dividend-paying stocks or those that have high yields. We have selected five dividend growth stocks — Cboe Global Markets CBOE, PACCAR Inc. PCAR, Installed Building Products, Inc. IBP, Arcos Dorados Holdings Inc. ARCO and Global Industrial Company GIC — that seem excellent choices for your portfolio.
Why is Dividend Growth Better?
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 increases 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 a 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 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 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 has 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 environments.
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 five.
Here are five stocks that fit the bill:
Illinois-based Cboe Global is one of the largest stock exchange operators by volume in the United States and a leading market globally for ETP trading. The company saw a positive earnings estimate revision of 9 cents over the past 30 days for the next year. It has an estimated earnings growth rate of 5.25%.
Cboe Global currently sports a Zacks Rank #1 and has a Growth Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.
Washington-based PACCAR is a leading manufacturer of heavy-duty trucks in the world and has substantial manufacturing exposure to light/medium trucks. The company delivered an average earnings surprise of 15.99% for the past four quarters.
PACCAR has a Zacks Rank #2 and a Growth Score of B.
Ohio-based Installed Building Products operates as a residential insulation installer in the United States. The company also installs complementary building products, including garage doors, rain gutters, shower doors, closet shelving and mirrors. Installed Building Products saw a positive earnings estimate revision of 25 cents for the next year over the past 30 days. It has an estimated earnings growth rate of 6.4%
Installed Building Products has a Zacks Rank #2 and a Growth Score of A at present.
Argentina-based Arcos Dorados operates as a franchisee of McDonald's, with its operations divided among Brazil, North Latin America, South Latin America and the Caribbean divisions. It also runs quick-service restaurants in Latin America and the Caribbean. Arcos Dorados saw a positive earnings estimate revision of 7 cents for the next year over the past 30 days and has an estimated earnings growth rate of 135.4%.
Arcos Dorados has a Zacks Rank #1 and a Growth Score of A.
New York-based Global Industrial is a provider of industrial products principally in North America. The stock has an estimated earnings growth rate of 11.1% for the next year and delivered an average earnings surprise of 8.55% for the past four quarters.
Global Industrial currently has a Zacks Rank #2 and a Growth Score of A.
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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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PACCAR Inc. (PCAR) : Free Stock Analysis Report
Cboe Global Markets, Inc. (CBOE) : Free Stock Analysis Report
Global Industrial Company (GIC) : Free Stock Analysis Report
Arcos Dorados Holdings Inc. (ARCO) : Free Stock Analysis Report
Installed Building Products, Inc. (IBP) : Free Stock Analysis Report
