The appeal for dividend investing is high this year amid market volatility. This is especially true as the strategy is a major source of consistent income for investors in any type of market but does not offer dramatic price appreciation. In particular, focusing on the growth level in this strategy leads to higher returns.
Stocks with a strong history of dividend growth year over year form a healthy portfolio with a greater scope of capital appreciation as opposed to simple dividend-paying stocks or those that have high yields. We have selected five dividend growth stocks —
Pfizer
PFE
,
The Kroger Co.
KR
,
Archer-Daniels-Midland Company
ADM
,
HP Inc.
HPQ
and
Jones Lang LaSalle Inc.
JLL
— that are compelling picks.
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.
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.
P/E Ratio Less than X-Industry
: A ratio less than X-industry indicates that the stock is cheap and undervalued in that industry.
Just these few criteria narrowed down the universe from over 7,700 stocks to just 16.
Here are five of the 16 stocks that fit the bill:
New York-based
Pfizer
discovers, develops, manufactures, markets, distributes and sells biopharmaceutical products worldwide. The company has a P/E ratio of 8.23 compared with the industry average of 12.93. Pfizer delivered an average earnings surprise of 10.85% in the past four quarters.
Pfizer has a Zacks Rank #1 and Growth Score of B. You can see
the complete list of today’s Zacks #1 Rank stocks here
.
Ohio-based
Kroger
operates as a retailer in the United States. The company operates supermarkets, multi-department stores, marketplace stores and price impact warehouse stores. It has a P/E ratio of 12.49 compared with the industry average of 12.97 and delivered an average earnings surprise of 20.25% in the past four quarters.
Kroger has a Zacks Rank #2 and Growth Score of A.
Archer-Daniels
is one of the leading producers of food and beverage ingredients as well as goods made from various agricultural products. The company has a P/E ratio of 15.24 compared with the industry average of 18.38. The stock saw earnings estimate revision of 28 cents over the past 30 days.
Archer-Daniels has a Zacks Rank #1 and Growth Score of A.
California-based
HP
is a leading global provider of personal computing and other access devices, imaging and printing products, and related technologies, solutions and services to individual consumers, SMBs and large enterprises, including customers in the government, health and education sectors. HP has a P/E ratio of 8.83 compared with the industry average of 18.64 and delivered an average earnings surprise of 17.98% in the past four quarters.
HP carries a Zacks Rank #2 and Growth Score of A.
Chicago-based
Jones Lang
is a leading full-service real estate firm that provides corporate, financial and investment management services to corporations and other real estate owners, users and investors worldwide. Jones Lang has a P/E ratio of 13.62 compared with the industry average of 18.28. Its earnings are expected to grow 6.2% this year.
The stock has a Zacks Rank #2 and Growth Score of A.
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.
Click here to sign up for a free trial to the Research Wizard today
.
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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