6 Dividend Growth Stocks for Outperformance

The Fed’s plan to ease monetary policy by cutting interest rates after lifting-off rates for three years has brought back the lure for dividend investing. While there are several dividend stocks that could provide capital appreciation, honing in on stocks with a history of dividend growth leads to a healthy portfolio, with greater scope of capital appreciation as opposed to simple dividend-paying stocks or those with high yields.

Further, dividend-paying securities are the major sources of consistent income when returns from the equity market are at risk.

Dividend Growth: A Winning Strategy

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 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.

Here are six of the 14 stocks that fit the bill:

Maryland-based Lockheed Martin Corporation LMT is a global security and aerospace company principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. It has seen solid earnings estimate revision of 13 cents over the past 30 days for this year and has an expected earnings growth rate of 16.7%. The stock has a Zacks Rank #1 and Growth Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.

Georgia-based Delta Air Lines Inc. DAL is America's fastest growing international carrier that provides scheduled air transportation for passengers and cargo in the United States and internationally. The company has seen solid earnings estimate revision of 24 cents over the past 30 days for this year and has an expected earnings growth rate of 22.6%. It carries a Zacks Rank #2 and has a Growth Score of A.

California-based Core-Mark Holding Company Inc. CORE is one of the largest marketers of fresh and broad-line supply solutions to the convenience retail industry in North America. The company has an estimated earnings growth rate of 13.67% for this year and delivered an average positive earnings surprise of 38.73% in the past four quarters. The stock has a Zacks Rank #2 and Growth Score of A.

Illinois-based Oaktree Capital Group LLC OAK is an investment management firm focused on alternative markets. The company delivered an average positive earnings surprise of 20.28% in the past four quarters and has an expected earnings growth rate of 31.94% for this year. The stock has a Zacks Rank #2 and Growth Score of B.

Lowa-based Caseys General Stores Inc. CASY operates convenience stores under the Casey's and Casey's General Store names. The company saw solid earnings estimate revision of 27 cents over the past 30 days for the fiscal year (ending April 2020) and has an estimated earnings growth rate of 6.35%. It has a Zacks Rank #1 and Growth Score of A.

California-based Intuit Inc. INTU provides financial management and compliance products and services for small businesses, consumers, self-employed and accounting professionals. The company has an expected earnings growth rate of 19.43% for fiscal year (ended August 2019) and delivered an average positive earnings surprise of 55.51% for the past four quarters. 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.

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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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Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
Lockheed Martin Corporation (LMT) : Free Stock Analysis Report
 
Intuit Inc. (INTU) : Free Stock Analysis Report
 
Oaktree Capital Group, LLC (OAK) : Free Stock Analysis Report
 
Core-Mark Holding Company, Inc. (CORE) : Free Stock Analysis Report
 
Caseys General Stores, Inc. (CASY) : Free Stock Analysis Report
 
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