5 Dividend Growth Stocks to Buy for 2H

U.S. stocks are on track for their worst first half of the year in more than 50 years. The combination of factors such as decades-high inflation, the Russia-Ukraine conflict and Fed’s aggressive tightening policy are weighing heavily on investor sentiment. In such a scenario, dividend investing is in vogue as investors seek consistent and safe income.

Though the strategy does not offer dramatic price appreciation, it is a major source of consistent income for investors in any market. In particular, focusing on the growth level in this strategy leads to higher returns. Stocks with a strong history of year-over-year dividend growth form a healthy portfolio, with a greater scope of capital appreciation, as opposed to simple dividend-paying stocks or those with high yields.

We have selected five dividend growth stocks — The Kroger Co. KR, Boise Cascade BCC, Lockheed Martin Corporation LMT, Paychex Inc PAYX and Everest Re Group Ltd RE — that could be compelling picks heading into the second half.

Dividend Growth: Why A Win 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 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 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 market environments.

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 23.

Here are the five of the 23 stocks that fit the bill:

Ohio-based The Kroger operates as a retailer in the United States. The company operates a combination of food and drug stores, multi-department stores, marketplace stores and price impact warehouses. The stock saw a positive earnings estimate revision of 7 cents for the fiscal year (ending January 2023) over the past 30 days and has an expected earnings growth rate of 6.25%.

Kroger has a Zacks Rank #1 and Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Idaho-based Boise Cascade operates as a wood products manufacturer and building materials distributor. The company manufactures engineered wood products, plywood, lumber and particleboard and distributes wood products, such as decking, EWP, lumber, panel, particleboard and MDF products. Boise Cascade has seen positive earnings estimate revision by 3 cents over the past month for this year, with an expected modest earnings growth rate of 2.7%.  

Boise Cascade has a Zacks Rank #2 and Growth Score of A.

Maryland-based Lockheed Martin is the largest defense contractor in the world. Its main areas of focus are defense, space, intelligence, homeland security and information technology, including cyber security. Lockheed Martin has seen positive earnings estimate revision by a couple of cents over the past month for this year and has an estimated earnings growth rate of 18.6%.

Lockheed Martin has a Zacks Rank #2 and Growth Score of B.

New York-based Paychex is one of the leading providers of integrated human capital management solutions for payroll, human resource, retirement, and insurance services for small- to medium-sized businesses. The stock has an estimated earnings growth rate of 8.7% for fiscal year (ending May 2023) and delivered an average four-quarter positive earnings surprise of 10.78%, on average.

Paychex has a Zacks Rank #2 and a Growth Score of B.

Bermuda-based Everest Re writes property and casualty, reinsurance and insurance in the United States, Bermuda and international markets. The stock has estimated earnings growth of 18.3% for this year and delivered a four-quarter average earnings surprise of 20.35%.

Everest Re carries a Zacks Rank #2 and Growth Score of A.

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.

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Lockheed Martin Corporation (LMT) : Free Stock Analysis Report
 
Paychex, Inc. (PAYX) : Free Stock Analysis Report
 
The Kroger Co. (KR) : Free Stock Analysis Report
 
Everest Re Group, Ltd. (RE) : Free Stock Analysis Report
 
Boise Cascade, L.L.C. (BCC) : Free Stock Analysis Report
 
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