Given a dovish Fed and bouts of market volatility, investors are in search of steady income with some aspect of growth. Under such circumstances, growth-focused dividend stocks make compelling plays as these not only offer dividends, but also consistently increase their payout.
In fact, dividend-paying securities are the major sources of consistent income when returns from the equity market are at risk.
Why Growth-Focused Dividends?
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.
Moreover, a history of dividend growth year over year leads to a healthy portfolio with a greater scope of capital appreciation as opposed to simple dividend paying stocks or those with high yields. 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 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 17 stocks that fit the bill:
Connecticut-based SS&C Technologies Holdings Inc. SSNC delivers investment and financial management software and related services, focused exclusively on the financial services industry. It has seen a positive earnings estimate revision of four cents for this year over the past month and an estimated earnings growth rate of 30.48%. The stock sports a Zacks Rank #1 and a Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Massachusetts-based Thermo Fisher Scientific Inc. TMO is a provider of analytical instruments, equipment, reagents and consumables, software, and services for research, manufacturing, analysis, discovery and diagnostics worldwide. It saw positive earnings estimate revision of a penny for this year over the past 30 days and has an expected growth rate of 9.26%. Thermo Fisher has a Zacks Rank #2 and Growth Score of B.
Oregon-based Columbia Sportswear Company COLM is a global leader in design, sourcing, marketing and distribution of active outdoor apparel and footwear with operations in North America, Europe and Asia. It has delivered average positive surprise of 83.45% in the last four quarters and has an estimated earnings growth of 8.23% for this year. The stock has a Zacks Rank #1 and a Growth Score of A.
Illinois-based Heidrick & Struggles International Inc. HSII is one of the leading global executive search firms. The company has pulled off average earnings surprise of 52.05% in the last four quarters and expects earnings to grow 3.17% for this year. The stock has a Zacks Rank #1 and a Growth Score of A.
Indiana-based Anthem Inc. ANTM operates as a health benefits company in the United States. The company saw solid earnings estimate of a penny over the past 30 days for this year and has an expected earnings growth rate of 20.52%. The stock has a Zacks Rank #2 and Growth Score of A.
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Thermo Fisher Scientific Inc. (TMO) : Free Stock Analysis Report
SS&C Technologies Holdings, Inc. (SSNC) : Free Stock Analysis Report
Anthem, Inc. (ANTM) : Free Stock Analysis Report
Columbia Sportswear Company (COLM) : Free Stock Analysis Report
Heidrick & Struggles International, Inc. (HSII) : Free Stock Analysis Report
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