Given the uncertainty surrounding Trump trade, investors are once again in search of consistent income backed by growth aspects. In such a scenario, nothing is perhaps better than dividend growth stocks for an investor.
Why Dividend Growth Stocks?
Dividend growth stocks offer the best of both worlds — potential for capital appreciation and rising income even in a volatile market. This is because these stocks belong to mature companies, which are less susceptible to large swings in the market, while simultaneously offering outsized payouts or sizable yields on a regular basis irrespective of the market direction.
Stocks that have a strong history of dividend growth also have superior fundamentals and form a healthy and safe portfolio as opposed to those that have high yields. Dividend growth reflects a sustainable business model, a long track of profitability, rising cash flows, good liquidity, a strong balance sheet and some value characteristics.
All these superior fundamentals make dividend growth stocks quality and promising investments for the long-term. Further, a history of strong dividend growth indicates that a hike is likely in the future.
Although these stocks have a long history of outperformance compared with the broader stock market or any other dividend-paying stock, it does not necessarily mean that they have the highest yields.
As a result, picking dividend growth stocks is a winning strategy when some other parameters are also included.
5-Year Historical Dividend Growth greater than zero: This selects dividend stocks with a solid dividend growth history.
5-Year Historical Sales Growth greater than zero: This represents dividend stocks with a strong record of growing revenue.
5-Year Historical EPS Growth greater than zero: This represents dividend 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 dividend 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 dividend stock appreciated more than the S&P 500 over the past one year.
Zacks Rank Less than 3: Stocks having a Zacks Rank #1 (Strong Buy) and 2 (Buy) generally outperform their peers in all types of market environment.
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 25 dividend stocks that fit the bill:
EnerSys (NYSE:ENS): This Pennsylvania-based company is a global leader in stored energy solutions for industrial applications. It saw solid earnings estimate revision of 10 cents for the full fiscal year (ending Mar 2018) over the last three months, and has an expected earnings growth of 7.15%. It has a Zacks Rank #2 and a VGM Style Score of A.
Broadcom Ltd (NASDAQ:AVGO): This Singapore-based company designs, develops and supplies a range of complex digital and mixed signal complementary metal oxide semiconductor-based devices and analog III-V based products worldwide. The stock saw a solid earnings estimate revision of 81 cents for the full fiscal year (ending Oct 2017) over the past 90 days and has an expected earnings growth rate of 32.04%. The stock has a VGM Style Score of B and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Tallgrass Energy Partners LP (NYSE:TEP): This Kansas-based company owns, operates, acquires and develops midstream energy assets primarily in North America. It saw a significant positive earnings estimate revision of 95 cents for the full fiscal year (ending Dec 2017) over the past 90 days, and has an expected growth rate of 45.12%. Tallgrass has a Zacks Rank #2 with a VGM Style Score of B.
Huntington Ingalls Industries Inc (NYSE:HII): This Virginia-based company is engaged in designing, building, overhauling and repairing ships primarily for the U.S. Navy and the U.S. Coast Guard. The stock saw solid earnings estimate revision by 88 cents over the past 90 days for the full fiscal year (ending December 2017), with an expected earnings growth rate of 11.13%. It has a Zacks Rank #1 and a VGM Style Score of A.
Lear Corporation (NYSE:LEA): This Michigan-based company is a global leader in designing, developing, engineering, manufacturing, assembling and supplying automotive seating, electrical distribution systems and related components primarily to automotive original equipment manufacturers worldwide. The stock saw positive earnings estimate revision of $1.07 over the past 90 days for the full fiscal year (ending Dec 2017) and has an expected earnings growth rate of 10.41%. It has a Zacks Rank #1 and a VGM Style 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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Lear Corporation (LEA): Free Stock Analysis Report
Broadcom Limited (AVGO): Free Stock Analysis Report
Enersys (ENS): Free Stock Analysis Report
Huntington Ingalls Industries, Inc. (HII): Free Stock Analysis Report
Tallgrass Energy Partners, LP (TEP): Free Stock Analysis Report
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