As volatility and uncertainty triggered by Fed’s policy tightening and recessionary fears persist in the stock market ahead of the New Year, dividend investing seems to be a better bet. Though it does not offer dramatic price appreciation, the strategy is a major source of consistent income for investors to create wealth when returns from the equity market are at risk.
Honing in on stocks with a history of dividend growth leads to a healthy portfolio with a greater scope of capital appreciation as opposed to simple dividend-paying stocks or those with high yields. We have selected five dividend growth stocks — Archer-Daniels-Midland Company ADM, Cardinal Health Inc. CAH, Insperity Inc. NSP, Deere & Company DE and H&R Block Inc. HRB — that could be compelling picks for your portfolio.
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 environments.
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.
Just these few criteria narrowed down the universe from over 7,700 stocks to just 13.
Here are five of the 13 stocks that fit the bill:
Illinois-based Archer-Daniels is one of the leading producers of food and beverage ingredients as well as goods made from various agricultural products. ADM has an expected earnings growth rate of 43.9% for this year and delivered an average earnings surprise of 26.22%.
Archer-Daniels has a Zacks Rank #2 and a Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Ohio-based Cardinal Health is a nation-wide drug distributor and provider of services to pharmacies, healthcare providers and manufacturers. The company saw solid earnings estimate revision of 3 cents over the past 30 days for the fiscal year (ending June 2023) and has an estimated earnings growth rate of 5.1%.
Cardinal Health has a Zacks Rank #2 and a Growth Score of B.
Texas-based Insperity provides an array of human resources and business solutions designed to improve business performance. The company has an estimated earnings growth rate of 34.2% for this year and delivered an average earnings surprise of 0.64% for the past four quarters.
Insperity has a Zacks Rank #2 and a Growth Score of B.
Illinois-based Deere & Company is the world’s largest producer of agricultural equipment, manufacturing agricultural machinery since 1837 under the iconic John Deere brand with its signature green and yellow color scheme. The stock saw solid earnings estimate revision of 57 cents over the past 30 days for the fiscal year (ending October 2023) and has an estimated earnings growth rate of 19.5%.
Deere & Company carries a Zacks Rank #2 and a Growth Score of A.
Missouri-based H&R Block is a leading provider of tax preparation services. The company provides assisted income tax return preparation, do-it-yourself tax solutions and other products and services associated with income tax return preparation in the United States, Canada and Australia. H&R Block has an expected earnings growth rate of 8.3% for the fiscal year (ending June 2023) and delivered an average earnings surprise of 13.93% in the past four quarters.
H&R Block 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.
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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.
7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."
Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.8% per year. So be sure to give these hand-picked 7 your immediate attention.
See them now >>Deere & Company (DE) : Free Stock Analysis Report
Archer Daniels Midland Company (ADM) : Free Stock Analysis Report
Cardinal Health, Inc. (CAH) : Free Stock Analysis Report
H&R Block, Inc. (HRB) : Free Stock Analysis Report
Insperity, Inc. (NSP) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
