5 Top-Ranked Dividend Stocks With Solid Growth Potential
The appeal for dividend investing has been riding high this year amid heightened volatility and uncertainty in the stock market thanks to the Fed’s aggressive rate hike, four-decade high inflation and global slowdown concerns. Although the strategy doesn’t offer dramatic price appreciation, it is a major source of consistent income for investors in any type of 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 — Ritchie Bros. Auctioneers RBA, The Kroger Co. KR, Extra Space Storage EXR, J.B. Hunt Transport Services JBHT and EOG Resources EOG — that could be compelling picks amid market volatility.
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 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 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 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 24.
Here are five of the 24 stocks that fit the bill:
Canada-based Ritchie Bros conducts unreserved public auctions every year at locations throughout North and Central America, Europe, Asia, Australia, Africa and the Middle East. The company has an estimated earnings growth rate of 7.2% for this year and delivered an average earnings surprise of 11.46% for the past four quarters.
Ritchie Bros has a Zacks Rank #1 and Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Ohio-based The Kroger operates as a retailer in the United States. The company operates a combination of food and drug stores, multi-department stores, marketplace stores and price impact warehouses. The stock saw a positive earnings estimate revision of 7 cents for the fiscal year (ending January 2023) over the past 90 days and has an expected earnings growth rate of 6.25%.
Kroger has a Zacks Rank #2 and Growth Score of A.
Utah-based Extra Space is a notable name in the self-storage industry. This real estate investment trust offers an array of well-located storage units to its customers, including boat storage, recreational vehicle storage and business storage. Extra Space saw a positive earnings estimate revision of 7 cents over the past 30 days for this year and has an expected earnings growth rate of 19.68%.
Extra Space has a Zacks Rank #2 and Growth Score of B.
Arkansas-based J.B. Hunt Transport is a provider of a broad range of transportation services to a diverse group of customers throughout the United States, Canada and Mexico. JBHT saw a positive earnings estimate revision of 33 cents over the past 30 days for this year and has an expected earnings growth rate of 33.89%.
J.B. Hunt has a Zacks Rank #2 and Growth Score of A.
Texas-based EOG Resources is primarily involved in exploring and producing oil and natural gas. The stock has seen a negative earnings estimate revision of $1.28 for this year over the past month and has an estimated earnings growth rate of 83%.
EOG Resources has a Zacks Rank #2 and 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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J.B. Hunt Transport Services, Inc. (JBHT) : Free Stock Analysis Report
The Kroger Co. (KR) : Free Stock Analysis Report
EOG Resources, Inc. (EOG) : Free Stock Analysis Report
Extra Space Storage Inc (EXR) : Free Stock Analysis Report
Ritchie Bros. Auctioneers Incorporated (RBA) : Free Stock Analysis Report
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