5 Dividend Growth Stocks Poised For Outperformance

The Fed’s shift to a patient approach on interest rates after lifting-off rates for three years has brought back the lure for dividend investing this year. While there are several dividend stocks that could provide capital appreciation, honing in on stocks having a history of dividend growth leads to a healthy portfolio, with a greater scope of capital appreciation as opposed to simple dividend paying stocks or those with high yields.

Further, dividend-paying securities are the major sources of consistent income when returns from the equity market are at risk.

Dividend Growth: A Winning Strategy

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.

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 appear as winning strategies 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 revenue.

5-Year Historical EPS Growth greater than zero: This represents stocks with a solid earnings growth history.

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