Given the decline in yields and the prospect of lower interest rates, investors are in search of returns. This has raised the appeal for dividend investing. While there are several dividend stocks that could provide capital appreciation, honing in on stocks with a history of dividend growth leads to a healthy portfolio, with greater scope of capital appreciation as opposed to simple dividend-paying stocks or those with high yields.
Further, dividend-paying securities are the major sources of consistent income when returns from the equity market are at risk.
Dividend Growth: A Winning 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 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 seven of the 22 stocks that fit the bill:
Rhode Island-based Hasbro Inc. HAS is a global play and entertainment company committed to creating the World's Best Play Experiences. It has seen solid earnings estimate revision of 13 cents for this year over the past month, with an expected earnings growth rate of 21.0%. The stock has a Zacks Rank #1 and Growth Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.
Georgia-based Delta Air Lines Inc. DAL is America's fastest growing international carrier that provides scheduled air transportation for passengers and cargo in the United States and internationally. The company has seen solid earnings estimate revision of 34 cents over the past 30 days for this year and has an expected earnings growth rate of 24.1%. It carries a Zacks Rank #1 and has a Growth Score of A.
New York-based OUTFRONT Media Inc. OUT is a lessor of advertising space on out-of-home advertising structures and sites across the United States, Canada and Latin America. The company has an estimated earnings growth rate of 6.5% for this year and delivered an average positive earnings surprise of 1.35% in the past four quarters. OUTFRONT Media has a Zacks Rank #2 and Growth Score of B.
Tennessee-based Dollar General Corporation DG is a discount retailer providing various merchandise products in the southern, southwestern, midwestern and eastern United States. It is expected to see earnings growth of 8.4% for the fiscal year (ending Jan 2020) and delivered an average positive earnings surprise of 1.59% in the last four quarters. The stock has a Zacks Rank #2 and Growth Score of B.
Washington-based Microsoft Corporation MSFT is engaged in developing, licensing and supporting software products, services and devices worldwide. Its earnings are expected to grow 9.7% for the fiscal year (ending June 2020). Microsoft delivered an average positive earnings surprise of 11.72% in the past four quarters. The stock has a Zacks Rank #2 and Growth Score of B.
California-based Core-Mark Holding Company Inc. CORE is one of the largest marketers of fresh and broad-line supply solutions to the convenience retail industry in North America. The company has an estimated earnings growth rate of 13.7% for this year and delivered an average positive earnings surprise of 38.73% in the past four quarters. The stock has a Zacks Rank #1 and 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 4 cents over the past 30 days for this year and has an expected earnings growth rate of 21.6%. The stock has a Zacks Rank #2 and Growth Score of B.
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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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Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
Core-Mark Holding Company, Inc. (CORE) : Free Stock Analysis Report
Anthem, Inc. (ANTM) : Free Stock Analysis Report
Dollar General Corporation (DG) : Free Stock Analysis Report
Hasbro, Inc. (HAS) : Free Stock Analysis Report
OUTFRONT Media Inc. (OUT) : Free Stock Analysis Report
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