5 Dividend Growth Stocks Set to Outperform Amid Volatility

Dividend investing has been in vogue amid bouts of volatility and uncertainty over sky-high inflation, rising interest rates and a dampening economic outlook. This is especially true as these are major sources of consistent income for investors in any type of market though they do not offer dramatic price appreciation.

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 that have high yields. We have selected five dividend growth stocks — H&R Block Inc. HRB, Diamondback Energy FANG, Westlake Chemical Corporation WLK, The Kroger Co. KR, and Extra Space Storage EXR — that could be compelling picks in the current market trends.

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 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 20.

Here are the five of the 20 stocks that fit the bill:

Missouri-based H&R Block is a leading provider of tax preparation services. The company provides assisted income tax return preparation, do-it-yourself (DIY) tax solutions and other products and services associated with income tax return preparation in the United States, Canada and Australia. H&R Block saw a solid earnings estimate revision of 32 cents over the past 30 days for the fiscal year (ending June 2022) and delivered an average earnings surprise of 21.04% in the past four quarters.  

H&R Block has a Zacks Rank #1 and Growth Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.

Texas-based Diamondback Energy is an independent oil and gas exploration & production company, with a primary focus on the Permian Basin. FANG saw a solid earnings estimate revision of $1.06 over the past 30 days for this year and has an estimated earnings growth rate of 123.2%.

Diamondback Energy has a Zacks Rank #2 and Growth Score of A.

Texas-based Westlake Chemical is a global producer and supplier of materials and innovative products. It has seen a solid earnings estimate revision of $2.09 for this year over the past one month and has an expected earnings growth rate of 26.4%.

Westlake Chemical has a Zacks Rank #1 and Growth Score of B.

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 8 cents for the fiscal year (ending January 2023) and has an expected earnings growth rate of 4.08%.

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

Utah-based Extra Space is a notable name in the self-storage industry. This real estate investment trust offers an array of well-located storage units to its customers, including boat storage, recreational vehicle storage and business storage. Extra Space saw a positive earnings estimate revision of 15 cents over the past 30 days for this year and has an expected earnings growth rate of 16.79%.

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

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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Westlake Corp. (WLK) : Free Stock Analysis Report
 
The Kroger Co. (KR) : Free Stock Analysis Report
 
H&R Block, Inc. (HRB) : Free Stock Analysis Report
 
Extra Space Storage Inc (EXR) : Free Stock Analysis Report
 
Diamondback Energy, Inc. (FANG) : Free Stock Analysis Report
 
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