5 Dividend Growth Stocks To Build A Solid 2021 Portfolio

Image: Bigstock

Amid low-interest rate and surging coronavirus cases, investors are eyeing both income and growth to start the New Year. This can easily be achieved by zeroing in on stocks that not only offer dividends but also consistently increase their payout.

Dividend Growth: A Winning Strategy

Stocks that have a strong history of dividend growth as opposed to those that have high yields form a healthy portfolio with more scope for capital appreciation. This is because these stocks act as a hedge against economic or political uncertainty as well as stock market volatility. Simultaneously, these offer outsized payouts or sizable yields on a regular basis irrespective of the market direction.

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 hike 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.

1 2 3
View single page >> |

Disclosure: Zacks.com contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any ...

more
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.