Honing in on dividend is the best practice during market turbulence. These cash payouts are major sources of consistent income for investors when returns from the equity market are at risk.
Dividend paying stocks are primarily mature companies, which are less susceptible to large swings in the market. Their market leading position, large customer base, sustainable business model, long track of profitability and strong liquidity allow them to offer outsized payouts or sizable yields on a regular basis irrespective of the market direction.
As a result, these stocks provide greater stability and more scope for capital appreciation as opposed to those that pay high yields.
Further, a history of strong dividend growth indicates that a future hike is likely. This makes the portfolio healthy and safe.
Though these stocks have a long history of outperformance compared with the broad stock market or any other dividend paying stocks, it does not necessarily mean that they have the highest yields.
Here are the screening parameters that could result in a winning dividend growth portfolio:
- 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 a 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.
- Zacks Rank Less than 2: Stocks having a Zacks Rank #1 (Strong Buy) and 2 (Buy) generally outperform their peers in all types of market environment. You can see the complete list of today’s Zacks #1 Rank stocks here.
VGM Style Score of B or better: This is simply a weighted combination of Value, Growth and Momentum. This when combined with a Zacks Rank #1 or #2 offers the best upside potential.
Here are five of the 24 stocks that fit the bill…