5 Top Dividend Growth Stocks to Buy Amid Market Volatility
Amid rising bond yields and growing geopolitical tensions, investors are flocking to dividend investing for safe and consistent returns. Dividends are major sources of consistent income for investors, though they do not offer dramatic price appreciation. These stocks tend to outperform in a choppy market and can reduce the volatility of a portfolio.
In fact, 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 — Griffon Corporation GFF, PACCAR Inc. PCAR, Microsoft Corporation MSFT, FedEx Corporation FDX and The TJX Companies, Inc. TJX — that could be solid choices for your portfolio.
Why Dividend Growth Strategy?
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 increase 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 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 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 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 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.
Just these few criteria narrowed down the universe from over 7,700 stocks to just six.
Here are five of the six stocks that fit the bill:
New York-based Griffon is a diversified management and holding company conducting business through wholly-owned subsidiaries. The company saw a positive earnings estimate revision of a couple of cents over the past seven days for the fiscal year ending September 2024 and delivered an average earnings surprise of 30.38% for the past four quarters.
Griffon has a Zacks Rank #1 and a Growth Score of A. 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 saw a solid earnings estimate revision of 40 cents over the past seven days for this year and has an estimated growth rate of 56.3%.
PACCAR has a Zacks Rank #2 and a Growth Score of B.
Washington-based Microsoft is one of the largest broad-based technology providers in the world. The company dominates the PC software market, with more than 73% of the market share for desktop operating systems. Microsoft saw a solid earnings estimate revision of 21 cents for the fiscal year (ending June 2024) over the past seven days and has an estimated earnings growth rate of 13.2%
Microsoft has a Zacks Rank #2 and a Growth Score of A.
Tennessee-based FedEx is the leader in global express delivery services. It provides a broad portfolio of transportation, e-commerce and business services through companies competing collectively, operating independently and managing collaboratively under the FedEx brand. FedEx saw a positive earnings estimate revision of 16 cents over the past 30 days for the fiscal year (ending May 2024) and has an estimated earnings growth rate of 21.26%.
FDX has a Zacks Rank #2 and a Growth Score of A.
Massachusetts-based TJX Companies is a leading off-price retailer of apparel and home fashions in the United States and worldwide. The company’s broad range of assortments at varying prices helps it reach out to a broad range of consumers. TJX Companies saw a positive earnings estimate revision of a penny over the past seven days for the fiscal year ending January 2024 and has an estimated growth rate of 19.61%.
TJX Companies 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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Microsoft Corporation (MSFT) : Free Stock Analysis Report
The TJX Companies, Inc. (TJX) : Free Stock Analysis Report
PACCAR Inc. (PCAR) : Free Stock Analysis Report
FedEx Corporation (FDX) : Free Stock Analysis Report
Griffon Corporation (GFF) : Free Stock Analysis Report
