In a low-interest-rate environment, dividend investing has been a hot spot and seems an excellent choice for 2020. Though the strategy doesn’t offer dramatic price appreciation, it is a major source of consistent income for investors in any type of market. In particular, focusing on the growth level in this strategy leads to higher returns.

Why is Dividend Growth Better?

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 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 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 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 21.

Here are five of the 21 stocks that fit the bill:

California-based SYNNEX Corporation (SNX - Free Report) is a business process services company providing business-to-business services to customers and business partners. It has seen solid earnings estimate revision of 70 cents over the past 30 days for the fiscal year (ending November 2020) and has an expected earnings growth rate of 5.3%. The stock has a Zacks Rank #1 and Growth Score of A.

Tennessee-based Dollar General Corporation (DG - Free Report) 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 11.4% for the fiscal year (ending January 2020) and delivered a positive earnings surprise of 4.34%, on average, in the last four quarters. The stock has a Zacks Rank #2 and Growth Score of B.

Virginia-based Booz Allen Hamilton Holding Corporation (BAH - Free Report) is engaged in providing management and technology consulting services to the U.S. government in the defense, intelligence, and civil markets. The company has an estimated earnings growth rate of 13.4% for the fiscal year (March 2020) and delivered a positive earnings surprise of 15.01%, on average, for the past four quarters. Booz Allen has a Zacks Rank #2 and Growth Score of A.

New York-based Morgan Stanley (MS - Free Report) is the leading financial services holding company that provides various financial products and services to corporations, governments, financial institutions, and individuals in the Americas, Europe, the Middle East, Africa, and Asia. The company has seen solid earnings estimate revision of 16 cents for this year over the past month and has an estimated earnings growth rate of 0.9%. It has a Zacks Rank #1 and Growth Score of B.

Massachusetts-based Raytheon Company (RTN - Free Report) is one of the largest aerospace and defense companies in the United States with a diversified line of military products, including missiles, radars, sensors, surveillance and reconnaissance equipment, communication and information systems, naval systems, air traffic control systems, and technical services. It delivered a positive earnings surprise of 8.60%, on average, for the past four quarters and has an expected earnings growth rate of 8.7% for 2020. The stock has a Zacks Rank #2 and Growth Score of A.