5 Dividend Growth Stocks to Buy at a Bargain Price

The stock market is struggling this year due to Russia’s invasion of Ukraine, skyrocketing inflation and Fed rate hikes. Many investors are therefore looking for safe and defensive bets, which reinforces the attractiveness of dividend investing. Although they don’t offer dramatic price appreciation, dividend-paying stocks are a major source of consistent income for investors in any type of market. These stocks tend to outperform when markets are volatile and can reduce a portfolio’s volatility.

In particular, focusing on the level of growth in this strategy leads to higher returns. Stocks with a solid track record of year-over-year dividend growth form a healthy portfolio with a greater scope for capital appreciation, as opposed to simple dividend-paying stocks or those with high yields. We picked five dividend growth stocks — Westlake Corporation WLK, Wooded Waterfall BCC, Target company TGT, Everest Re Ltd Group RE and Progress software PRGS – this could be a compelling choice in a volatile market environment.

Why dividend growth?

Stocks that have a strong track record of dividend growth belong to mature companies, which are less sensitive to major market fluctuations and act as a hedge against economic or political uncertainty as well as stock market volatility. At the same time, these provide downside protection with their steady increase in payouts.

Additionally, these stocks have superior fundamentals that make dividend growth a quality and promising long-term investment. These include a sustainable business model, a long trajectory of profitability, growing cash flow, good liquidity, a strong balance sheet and certain value characteristics. Additionally, a history of strong dividend growth indicates that an increase in dividends is likely in the future.

While these stocks don’t necessarily have the highest yields, they have outperformed for a longer period of time than the broader stock market or any other dividend-paying stock.

Therefore, choosing dividend-growing stocks appears to be a winning strategy when certain other parameters are also included.

Historical 5-year dividend growth greater than zero: This selects stocks with a solid track record of dividend growth.

Historical 5-year sales growth greater than zero: This represents stocks with a solid track record of growing earnings.

Historic 5-year EPS growth greater than zero: This represents stocks with a solid track record of earnings growth.

Next 3-5 year EPS growth rate greater than zero: This is the rate at which a company’s profits are expected to grow. Improving earnings should help companies maintain dividend payments.

Price/Cash Flow lower than M-Industry: A ratio below M-industry indicates that the stock is undervalued in that industry and an investor should pay less for better cash flow generated by the company.

52-week price change above S&P 500 (market weight): This guarantees that the stock has appreciated more than the S&P 500 over the past year.

Best Zacks ranking: Stocks with a Zacks rank of #1 (strong buy) and 2 (buy) generally outperform their peers in all types of market environments.

Growth score 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 most upside potential.

P/E ratio lower than X-Industry: A ratio below X-industry indicates that the stock is cheap and undervalued in that industry.

These few criteria reduced the universe from more than 7,700 stocks to just 12.

Here are five of the 12 actions that fit the bill:

Based in Texas Westlake Corporation is a global producer and supplier of innovative materials and products. The company has a P/E ratio of 6.87 compared to the industry average of 7.02. Westlake has posted an average earnings surprise of 13.78% over the past four quarters.

Westlake has a Zacks Rank #1 and a Growth Score of B. You can see the full list of today’s Zacks #1 Rank stocks here.

Based in Idaho Wooded Waterfall is a manufacturer of wood products and a distributor of building materials. The company manufactures engineered wood products, plywood, lumber and particleboard and distributes wood products, such as decking, EWP, lumber, panel, particle board and MDF products. It has a P/E ratio of 5.05 compared to the industry average of 10.27 and has generated an average earnings surprise of 38.18% over the past four quarters.

Boise Cascade has a Zacks rank of No. 2 and a growth score of A.

Based in Minnesota Target is a general merchandise retailer in the United States. The company offers food assortments, including perishables, dry groceries, dairy products and frozen products. clothing, accessories, home decor products, electronics, toys, seasonal offers, food and other merchandise; and beauty and household products. The company has a P/E ratio of 15.48 compared to the industry average of 19.85. The stock has seen its estimated earnings revised by 8 cents in the last 30 days for the financial year (January 2023).

The target has a Zacks rank of #2 and a growth score of A.

Based in Bermuda Everest Re writes property and casualty insurance, reinsurance and insurance in the United States, Bermuda and international markets. The stock has a P/E ratio of 8.39 compared to the industry average of 14.11 and has generated an average earnings surprise of 20.35% over the past four quarters.

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

Based in Massachusetts Progress offers the leading platform for developing and deploying business-critical applications. It has a P/E ratio of 11.54 compared to the industry average of 29.47. Its earnings are expected to grow 4.6% in the fiscal year (ending November 2022).

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

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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 the options mentioned herein. An affiliated investment advisory firm may hold or have shorted securities and/or hold long and/or short positions in options mentioned herein.

Disclosure: Information on the performance of Zacks portfolios and strategies is available at: https://www.zacks.com/performance.

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Westlake Corp. (WLK): Free Stock Analysis Report

Target Corporation (TGT): Free Share Analysis Report

Everest Re Group, Ltd. (RE): Free Inventory Analysis Report

Progress Software Corporation (PRGS): Free Inventory Analysis Report

Boise Cascade, LLC (BCC): Free Stock Analysis Report

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