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5 Solid Dividend Growth Stocks Amid Rising Rates

Zacks

Rising yields have dampened the appeal for dividend stocks. Although high dividend stocks are an eye soar in the current environment, dividend growth ones pose strong fundamentals and are lucrative, especially given the new tax legislation in the United States and heightened volatility.

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 a 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 appear as winning strategies 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 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 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 one 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.

Here are five of the 20 stocks that fit the bill:

Illinois-based Jones Lang LaSalle Inc. JLL is a full-service real estate firm that provides management services, corporate and financial services and investment management services to corporations and other real estate owners, users and investors worldwide. It has a P/E ratio of 15.96 versus the industry average of 17.34 and an expected earnings growth rate of 5.02% for this year. The stock has a Zacks Rank #1 and a Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

California-based Intel INTC is one of the world's largest semiconductor chip maker. It is expected to see earnings growth of 1.16% this year and has a P/E ratio of 12.54 versus the industry average of 16.30. The stock has a Zacks Rank #2 and a Growth Score of B.

Tennessee-based Dollar General Corporation DG is a discount retailer providing various merchandise products in the southern, southwestern, midwestern and eastern United States. It is expected to see earnings growth of 19.31% this fiscal year (ending Jan 1, 2019) and has a P/E ratio of 18.29 versus the industry average of 18.68. The stock has a Zacks Rank #2 and a Growth Score of B.

Illinois-based AbbVie Inc. ABBV is a global research-based biopharmaceutical company, which discovers, develops, manufactures and sells pharmaceutical products worldwide. The company has a P/E ratio of 14.92 compared with the industry average of 15.23 and an expected earnings growth rate of 33.57% for this year. It has a Zacks Rank #2 and a Growth Score of B.

Ohio-based Owens Corning Inc. OC is a world leader in building materials systems and composite solutions. It is expected to see earnings growth of 24.72% this year and has a P/E ratio of 15.08 versus the industry average of 16.89. Owens Corning has a Zacks Rank #2 and a Growth 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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