With the start of May, investors have turned cautious given the long history of weak performance during the summer months (May to October) per the old adage “Sell in May and Go Away.” Amid such a scenario, honing in on the dividend growth strategy seems to the best practice.
This is because investors can enjoy rising current income while awaiting capital appreciation irrespective of market conditions.
Why Dividend Growth?
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 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 appears as a winning strategy 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 revenues.
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 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 15 stocks that fit the bill:
Excellent Dividend Growth Stocks to Beat May Swoon: Westlake Chemical Corporation (WLK)
Texas-based Westlake Chemical Corporation (NYSE:WLK) is a vertically integrated international manufacturer and supplier of petrochemicals, polymers and fabricated products.
It has seen solid earnings estimate revision of 13 cents for this year over the past one month and has an expected earnings growth rate of 55.76%.
WLK stock has a Zacks Rank #1 and a Growth Style Score of A.
Excellent Dividend Growth Stocks to Beat May Swoon: Petmed Express Inc (PETS)
Florida-based Petmed Express Inc (NASDAQ:PETS) is America’s largest pet pharmacy, delivering prescription and non-prescription pet medication, and health and nutritional supplements for dogs and cats.
The company has an estimated earnings growth rate of 21.47% for this year (ending March 2019) and has delivered an average positive earnings surprise of 32.87% in the past four quarters.
PETS has a Zacks Rank #2 and a Growth Score of A.
Excellent Dividend Growth Stocks to Beat May Swoon: Lam Research Corporation (LRCX)
California-based Lam Research Corporation (NASDAQ:LRCX) designs, manufactures, markets and services semiconductor processing equipment used in the fabrication of integrated circuits.
It has seen solid earnings estimate revision of 78 cents over the past 30 days for the fiscal year (ending June 2018) and has an expected earnings growth rate of 75.75%.
Lam Research has a Zacks Rank #1 and a Growth Score of A.
Excellent Dividend Growth Stocks to Beat May Swoon: H&E Equipment Services, Inc. (HEES)
Louisiana-based H&E Equipment Services, Inc. (NASDAQ:HEES) is one of the largest integrated equipment services companies in the United States with full-service facilities throughout the Intermountain, Southwest, Gulf Coast & Southeast regions of the United States.
It delivered an average positive earnings surprise of 58.84% in the past four quarters and saw positive earnings estimate revision of seven cents over the past 30 days for this year.
HEES stock has a Zacks Rank #2 and a Growth Score of A.
Excellent Dividend Growth Stocks to Beat May Swoon: Lazard Ltd (LAZ)
Bermuda-based Lazard Ltd (NYSE:LAZ) is a preeminent international financial advisory and asset management firm that has long specialized in crafting solutions to the complex financial and strategic challenges of their clients.
The company has seen solid earnings estimate revision of 26 cents over the past 30 days for this year and has an expected earnings growth rate of 12.43%.
LAZ stock has a Zacks Rank #1 and a Growth Score of B.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It’s easy to use. Everything is in plain language. And it’s very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
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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