U.S. Markets closed

5 Excellent Dividend Growth Stocks Worth Adding to Your Kitty

Sweta Killa
Though rising yields have dampened the appeal for dividend investing, a niche corner of this space, comprising stocks that boast dividend growth, is still in vogue.

Though rising yields have dampened the appeal for dividend investing, a niche corner of this space, comprising stocks that boast dividend growth, is still in vogue. Stocks with a strong history of dividend growth year over year form a healthy portfolio with greater scope of capital appreciation as opposed to simple dividend paying stocks or those that have high yields.

Dividend Growth: A Winning Strategy

Dividend growth stocks offer the best of both worlds –– potential for capital appreciation and rising income even in a volatile market. This is because these stocks belong to mature companies, which are less susceptible to large swings in the market, and simultaneously offer outsized payouts or sizable yields on a regular basis irrespective of the market direction.

Dividend growth reflects 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 stocks promising investments for the long term. Further, a history of strong dividend growth indicates that a hike is likely in the future.

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 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 15 stocks that fit the bill:

Pennsylvania-based Dick's Sporting Goods Inc. DKS is a leading full-line sporting goods retailer in the United States. The company has a P/E ratio of 11.91 compared with the industry average of 12.34 and delivered earnings surprises in the past four quarters, with the average beat being 18.23%. It has a Zacks Rank #1 and a Growth Score of A.

Washington-based Microsoft Corporation MSFT is engaged in developing, licensing, and supporting software products, services and devices worldwide. Its earnings are expected to grow 13.14% for the fiscal year ending June 2019 while its P/E ratio stands at 24.36 compared with the industry average of 30.55. The stock has a Zacks Rank #2 and a Growth Score of B.

Indiana-based Anthem Inc. ANTM operates as a health benefits company in the United States. The company has a P/E ratio of 18.05 compared with the industry average of 19.53 and an expected earnings growth rate of 30.1% for this year. The stock has a Zacks Rank #2 and a Growth Score of B.

Arkansas-based ArcBest Corporation ARCB provides freight transportation services and integrated logistics solutions worldwide. The stock is expected to see earnings growth of 173.68% this year and has a P/E ratio of 10.96 versus the industry average of 15.90. ArcBest has a Zacks Rank #1 and a Growth Score of A.

Ohio-based The Progressive Corporation PGR provides personal and commercial auto insurance, residential property insurance, and other specialty property-casualty insurance and related services primarily in the United States. The company has a P/E ratio of 15.03 compared with the industry average of 15.10 and its earnings are expected to grow 82.13% this year. It has a Zacks Rank #2 and a Growth 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.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
ArcBest Corporation (ARCB) : Free Stock Analysis Report
 
Microsoft Corporation (MSFT) : Free Stock Analysis Report
 
The Progressive Corporation (PGR) : Free Stock Analysis Report
 
Anthem, Inc. (ANTM) : Free Stock Analysis Report
 
DICK'S Sporting Goods, Inc. (DKS) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research