6 Great Dividend Growth Stocks For Higher Returns
Zacks Investment Research | Nov 29, 2016 08:40PM ET
Though rising yields have dampened the appeal for dividend investing, a niche corner of this space is still in vogue. This is none other than the dividend growth strategy. Stocks with a strong history of dividend growth year over year form a healthy portfolio with greater scope of capital appreciation as opposed to simple dividend paying stocks or those that pays high yields.
Inside Dividend Growth Strategy
Dividend growth stocks generally act as a hedge against economic or political uncertainty as these belong to mature companies, which are less susceptible to large swings in the market while simultaneously 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, strong balance sheet and some value characteristics. Further, a history of strong dividend growth indicates that a future hike is likely, which makes the portfolio safer.
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.
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 to 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 3: Stocks having a Zacks Rank #1 (Strong Buy) and 2 (Buy) generally outperform than 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.
Market Capitalization greater than $2 billion: We have eliminated small caps stocks to ensure better flexibility and tradability.
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Here are six of the 11 stocks that fit the bill:
FedEx Corporation (NYSE:FDX) : This Tennessee-based company is a global transportation and logistics enterprise that offers customers a one-stop source for global shipping, logistics and supply chain solutions. The stock saw solid earnings estimate revision of 19 cents over the past 90 days for this fiscal year, with an expected earnings growth rate of 12.27%. It has a Zacks Rank #2 and a VGM Style Score of A.
AXIS Capital Holdings Limited (NYSE:AXS) : This Bermuda-based company is a global provider of specialty lines insurance and treaty reinsurance. It delivered an average positive earnings surprise of 30.19% over the past four quarters and saw a whopping earnings estimate revision of 64 cents for this year over the past 90 days. The stock has a Zacks Rank #2 and a VGM Style Score of B.
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 19 cents over the past three months, with an expected earnings growth of 16.54%. It has a Zacks Rank #1 and a VGM Style Score of A. You can see Original post
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