Going ahead into the New Year, investors are looking for both income and growth in their portfolios. This can easily be achieved by honing in on stocks that not only pay 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 pays 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 compared to other dividend paying stocks as dividend growth reflects a sustainable business model, a long track of profitability, rising cash flows, good liquidity, a strong balance sheet and some value characteristics. All these make dividend growth a quality and promising investment for the long term.

However, the long history of outperformance by dividend growth stocks compared with the broader stock market or any other dividend paying stocks does not necessarily mean that they have the highest yields.

Here are the screening parameters that could result in a winning dividend growth portfolio:

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 a 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.

Zacks Rank Less than 3: Stocks having a Zacks Rank #1 (Strong Buy) and 2 (Buy) generally outperform their peers in all types of market environment.

VGM Style Score of B or better: This is simply a weighted combination of Value, Growth and Momentum. This when combined with a Zacks Rank #1 or #2 offers the best upside potential.

Market Capitalization greater than $2 billion: We have eliminated small caps stocks to ensure better flexibility and tradability.

Here are seven of the 15 stocks that fit the bill:

Broadcom Limited (AVGO - Free Report) : This Singapore-based company designs, develops, and supplies a range of complex digital and mixed signal complementary metal oxide semiconductor based devices and analog III-V based products worldwide. The stock saw a solid earnings estimate revision of 70 cents for the current fiscal year over the past 90 days with an expected earnings growth rate of 24.72%. The stock has a VGM Style Score of B and sports a Zacks Rank #1 (Strong Buy). 

Packaging Corporation of America (PKG - Free Report) : This Illinois-based company is one of the largest producers of containerboard in the United States and one of the largest manufacturers of corrugated packaging products. The stock delivered an average positive earnings surprise of 4.98% in three of the past four quarters and has an earnings growth rate of 6.56% for 2016. It has a Zacks Rank #2 and a VGM Style Score of A.

EnerSys (ENS - Free Report) : This Pennsylvania-based company is a global leader in stored energy solutions for industrial applications. It saw solid earnings estimate revision of 19 cents for the current fiscal year over the past three months, with an expected earnings growth of 16.54%. It has a Zacks Rank #1 and a VGM Style Score of B.

Torchmark Corporation (TMK - Free Report) : This Texas-based financial services holding company specializes in life and supplemental health insurance for middle-income Americans. It saw earnings estimates going up by a penny over the past 90 days for 2016 with an expected earnings growth of 6.25%. The stock has a Zacks Rank #2 and a VGM Style Score of B.

Huntington Ingalls Industries, Inc. (HII - Free Report) : This Virginia-based company is engaged in designing, building, overhauling, and repairing ships primarily for the U.S. Navy and the U.S. Coast Guard. The stock saw positive earnings estimate revision by a penny over the past 90 days for 2016, with an expected earnings growth rate of 19.61%. It has a Zacks Rank #2 and a VGM Style Score of B.

Citigroup Inc. (C - Free Report) : This New York-based company is a global financial services company that provides various financial products and services for consumers, corporations, governments, and institutions worldwide. The stock saw earnings estimate revision of 10 cents for 2016 over the past 90 days and delivered a positive earnings surprise of 1.73% in three of the past four quarters. Citigroup has a Zacks Rank #2 and a VGM Style Score of B.