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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.

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 the 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 nine.

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

Illinois-based Deere & Company (DE Quick Quote DE - Free Report) is the world’s largest producer of agricultural equipment, manufacturing agricultural machinery since 1837 under the iconic John Deere brand with its signature green and yellow color scheme. The stock saw a solid earnings estimate revision of 21 cents over the past 30 days for the fiscal year (ending October 2021) and has an estimated earnings growth rate of 48.4%. It sports a Zacks Rank #1 and Growth Score of A. 

Colorado-based TeleTech Holdings Inc. (TTEC Quick Quote TTEC - Free Report) is a customer experience, technology, and services company that focuses on the design, implementation, and delivery of customer experiences. The company has seen solid earnings estimate revision of 3 cents over the past month for this year and has delivered an average positive earnings surprise of 51.79% in the past four quarters. The stock has a Zacks Rank #2 and Growth Score of A.

California-based Broadcom Inc. (AVGO Quick Quote AVGO - Free Report) is a premier designer, developer, and global supplier of a broad range of semiconductor devices with a focus on complex digital and mixed-signal complementary metal oxide semiconductor-based devices and analog III-V based products. The stock saw a solid earnings estimate revision of 87 cents for the fiscal year (ending October 2021) over the past 30 days and has an expected earnings growth rate of 18.5%. The stock has a Zacks Rank #2 and a Growth Score of B.

Tennessee-based Tractor Supply Company (TSCO Quick Quote TSCO - Free Report) is the largest retail farm and ranch store chain in the United States. It has delivered an average positive earnings surprise of 6.97% in the past four quarters. The stock has a Zacks Rank #2 and a Growth Score of B.

Taiwan-based Taiwan Semiconductor Manufacturing Company Ltd. (TSM Quick Quote TSM - Free Report) is the world's largest dedicated integrated circuit foundry. The company has seen solid earnings estimate revision of 19 cents over the past 30 days for this year and has estimated earnings growth of 10%. The stock has a Zacks Rank #2 and Growth Score of A.