Dividend Growth Investing in Vogue: 5 Stock Picks

Dividend stocks remained the most popular investing area amid volatility. Although easing inflation has suppressed bets on Fed’s aggressive rate hike stance, a slowdown in China, the lingering Russia-Ukraine war and recession fears continue to weigh on the stock market.

Dividend stocks do not offer dramatic price appreciation but are major sources of consistent income for investors in any market. These stocks tend to outperform during volatile markets and can reduce the volatility of a portfolio. 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 — TotalEnergies SE TTE, ArcBest Corporation ARCB, Dollar General Corporation DG, McKesson Corporation MCK and Archer-Daniels-Midland Company ADM — that could be compelling picks.

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.

Just these few criteria narrowed down the universe from over 7,700 stocks to just 29.

Here are five of the 29 stocks that fit the bill:

France-based TotalEnergies is among the top five publicly traded global integrated oil and gas companies based on production volumes, proved reserves and market capitalization. It has seen a solid earnings estimate revision of $1.27 over the past 30 days for this year and has an estimated earnings growth rate of 107%.  

TotalEnergies has a Zacks Rank #1 and Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Arkansas-based ArcBest provides freight transportation services and solutions. The company has seen a positive earnings estimate revision of 74 cents over the past 30 days for this year and has an estimated earnings growth rate of 68.1%.

ArcBest has a Zacks Rank #2 and Growth Score of A.

Tennessee-based Dollar General is one of the largest discount retailers in the United States, offering a wider selection of merchandise, including consumable items, seasonal items, home products and apparel. The company has seen a solid earnings estimate revision of 5 cents over the past 30 days for the fiscal year (ending January 2023) and has an estimated earnings growth rate of 13.3%.

Dollar General has a Zacks Rank #2 and Growth Score of B.

California-based McKesson is a health care services and information technology company. The stock has seen a solid earnings estimate revision of 79 cents over the past 30 days for the fiscal year (ending March 2023) and has an expected earnings growth rate of 1.5%.

McKesson has a Zacks Rank #2 and Growth Score of B.

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 seen a solid earnings estimate revision of 39 cents for this year and has an expected earnings growth rate of 29.1%.

Archer-Daniels 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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Dollar General Corporation (DG) : Free Stock Analysis Report
 
Archer Daniels Midland Company (ADM) : Free Stock Analysis Report
 
McKesson Corporation (MCK) : Free Stock Analysis Report
 
ArcBest Corporation (ARCB) : Free Stock Analysis Report
 
TotalEnergies SE Sponsored ADR (TTE) : Free Stock Analysis Report
 
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