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Wall Street has been on a volatile ride over the past month, amid escalating trade disputes, concerns over a slowing economy and intensifying geopolitical tensions. In such a scenario, dividend investing seems to be a prudent option to fight the current market turmoil. Though dividend-paying stocks don’t offer dramatic price appreciation, they provide a consistent income stream. 

In particular, focusing on the growth level in this strategy leads to higher returns. Stocks with a strong history of year-over-year dividend growth form a healthy portfolio, offering greater scope for capital appreciation compared to simple dividend-paying stocks or those with high yields. We have selected three dividend growth stocks — CSG Systems International Inc. (CSGS - Free Report) , Gildan Activewear Inc. (GIL - Free Report) and Tapestry, Inc. (TPR - Free Report) — that could be compelling picks for investors amid the current market turmoil. 

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 a 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 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.

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

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

Colorado-based CSG Systems is a leading provider of outsourced billing, customer care, and print and mail solutions and services supporting the North American cable and direct broadcast satellite markets. The company has a P/E ratio of 12.80 compared with the industry average of 17.35. It has delivered an earnings surprise of 13.80% over the past four quarters. 

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

Montreal-based Gildan Activewear manufactures and markets premium-quality branded basic activewear for sale, principally in the wholesale imprinted activewear segment of the North American apparel market. The company has a P/E ratio of 13.44 compared with the industry average of 13.87. Its earnings are estimated to grow 16% this year.

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

New York-based Tapestry, which was formerly known as Coach, is the designer and marketer of fine accessories and gifts for women and men in the United States and internationally. The company has an expected earnings growth rate of 14.4% for the fiscal year (ending June 2025). It has a P/E ratio of 14.97 compared with the industry average of 15.08.

Tapestry has a Zacks Rank #2 and a Growth Score of A at present. 

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