Volatility and uncertainty in the stock market have taken the front seat in recent weeks on worries over higher interest rates for longer time. In such a scenario, dividend investing seems to be a prudent option to fight the current market turmoil. Though dividend-paying stocks don\u2019t offer dramatic price appreciation, they provide a consistent income stream.<\/p>\n
In particular, focusing on the growth level in this strategy leads to higher returns. Stocks with a strong history of dividend growth year over year form a healthy portfolio with a greater scope of capital appreciation as opposed to simple dividend-paying stocks or those that have high yields. We have selected five dividend growth stocks \u2014 Applied Materials Inc.<\/strong> AMAT, PulteGroup Inc.<\/strong> PHM, Arcos Dorados Holdings Inc.<\/strong> ARCO, McKesson Corporation<\/strong> MCK and NetEase Inc.<\/strong> NTES \u2014 that could be compelling picks for investors.<\/p>\n 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.<\/p>\n 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.<\/p>\n 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.<\/p>\n As a result, picking dividend growth stocks appears as a winning strategy when some other parameters are also included.<\/p>\n 5-Year Historical Dividend Growth greater than zero<\/strong>: This selects stocks with a solid dividend growth history.<\/p>\n 5-Year Historical Sales Growth greater than zero<\/strong>: This represents stocks with a strong record of growing revenues.<\/p>\n 5-Year Historical EPS Growth greater than zero<\/strong>: This represents stocks with a solid earnings growth history.<\/p>\n Next 3-5 Year EPS Growth Rate greater than zero<\/strong>: This represents the rate at which a company\u2019s earnings are expected to grow. Improving earnings should help companies sustain dividend payments.<\/p>\n Price\/Cash Flow less than M-Industry<\/strong>: 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.<\/p>\n 52-Week Price Change greater than S&P 500 (Market Weight)<\/strong>: This ensures that the stock appreciated more than the S&P 500 over the past year.<\/p>\n Top Zacks Rank<\/strong>: Stocks having a Zacks Rank #1 (Strong Buy) and 2 (Buy) generally outperform their peers in all types of market environment.<\/p>\n Growth Score<\/strong> of B or better<\/strong>: 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>\n P\/E Ratio Less than X-Industry<\/strong>: A ratio less than X-industry indicates that the stock is cheap and undervalued in that industry.<\/p>\n Just these few criteria narrowed down the universe from over 7,700 stocks to just 12.<\/p>\n Here are five of the 12 stocks that fit the bill:<\/p>\n California-based Applied Materials<\/strong> is one of the world\u2019s largest suppliers of equipment for the fabrication of semiconductors, flat panel liquid crystal displays (LCDs), and solar photovoltaic (PV) cells and modules. The company has a P\/E ratio of 17.29 compared with the industry average of 22.12. It has an estimated growth rate of 2.60% for the fiscal year (ending October 2023).<\/p>\n Applied Materials has a Zacks Rank #1 and a Growth Score of B.<\/p>\n Atlanta-based PulteGroup<\/strong> is engaged in homebuilding and financial services businesses, primarily in the United States. The company has a P\/E ratio of 6.36 compared with the industry average of 8.15. Its earnings are estimated to grow 7.6% for this year.<\/p>\n PulteGroup carries a Zacks Rank #2 and has a Growth Score of B.<\/p>\n Argentina-based Arcos Dorados<\/strong> operates as a franchisee of McDonald’s, with its operations divided in Brazil, North Latin America, South Latin America and the Caribbean divisions. It also runs quick-service restaurants in Latin America and the Caribbean. Arcos Dorados has a P\/E ratio of 12.17 compared with the industry average of 20.73 and has an estimated earnings growth rate of 13%.<\/p>\n Arcos Dorados has a Zacks Rank #1 and a Growth Score of A.<\/p>\n California-based McKesson<\/strong> is a healthcare services and information technology company. The stock has an expected earnings growth rate of 4.2% for the fiscal year (ending March 2024). It has a P\/E ratio of 16.51 compared with the industry average of 21.81.<\/p>\n McKesson has a Zacks Rank #2 and a Growth Score of B.<\/p>\n Beijing-based NetEase<\/strong> is an Internet technology company engaged in the development of applications, services and other technologies in China. It has an estimated earnings growth rate of 30.3% for this year and has a P\/E ratio of 15.43 compared with the industry average of 23.08.<\/p>\n NetEase has a Zacks Rank #2 and a Growth Score of B. PulteGroup, Inc. (PHM): Free Stock Analysis Report<\/p>\n Applied Materials, Inc. (AMAT): Free Stock Analysis Report<\/p>\n NetEase, Inc. (NTES): Free Stock Analysis Report<\/p>\n Arcos Dorados Holdings Inc. (ARCO): Free Stock Analysis Report<\/p>\n To read this article on Zacks.com click here.<\/p>\n Zacks Investment Research<\/p>\n This article originally appeared on Zacks<\/i><\/p>\n Sponsored: Find a Qualified Financial Advisor<\/b><\/p>\n Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.<\/p>\nWhy Dividend Growth?<\/h3>\n
\nMcKesson Corporation (MCK): Free Stock Analysis Report<\/p>\n