5 Top Dividend Stocks To Ride The Tax Reform Rally

While a rise in interest rates might diminish the attractiveness of dividend stocks, these will still be in demand on optimism surrounding the biggest tax overhaul in decades. This is because lower corporate taxes will boost companies’ profits leading to handsome dividends and in turn lead to outperformance of stocks with a history of year-over-year dividend growth.

Why Dividend Growth?

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. At the same time, these offer downside protection with their consistent increase in payouts.

These stocks have superior fundamentals as opposed to their traditional dividend counterparts such as a sustainable business model, a long track record of profitability, rising cash flows, good liquidity, strong balance sheet and some value characteristics. They have a history of outperformance over the long term but not necessarily high dividend yields. All these make dividend growth a quality and promising investment metric for the long term.

Further, a history of strong dividend growth indicates that dividend increase in the future is likely. This makes the portfolio healthy and safe. Though these stocks have a long history of outperformance compared with the broader stock market or any other dividend paying stock, it does not necessarily mean that they have the highest yields.

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 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 one year.

Top Zacks Rank: Stocks having a Zacks Rank #1 (Strong Buy) and 2 (Buy) generally outperform peers in all types of market environment.

Growth Style 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.

Here are five of the 15 stocks that fit the bill:

Louisiana-based H&E Equipment Services Inc. (NASDAQ:HEES) is one of the largest integrated equipment service companies in the United States with full-service facilities throughout the Intermountain, Southwest, Gulf Coast & Southeast regions of the United States. It has seen positive earnings estimate revision of 10 cents for the current fiscal over the past month and has delivered an average positive earnings surprise of 3.63% in the past four quarters. The stock has a Growth Style Score of B and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lowa-based Rockwell Collins, Inc. (NYSE:COL) designs, produces and supports communications and aviation systems for commercial and military customers. The stock has an expected earnings growth rate of 16.76% for the current fiscal and has delivered an average positive earnings surprise of 5.11% in the last four quarters. The stock has a Zacks Rank #2 and a Growth Style Score of B.

Tennessee-based FedEx Corporation (NYSE:FDX) is a global transportation and logistics enterprise that offers customers a one-stop source for global shipping, logistics and supply chain solutions. The stock saw positive earnings estimate revision of six cents over the past 30 days for the current fiscal, with an expected earnings growth rate of 1.83%. It has a Zacks Rank #2 and a Growth Style Score of A.

Illinois-based Jones Lang LaSalle Incorporated (NYSE:JLL) is a full-service real estate firm, which provides management services, corporate and financial services and investment management services to corporations and other real estate owners, users and investors worldwide. The company has seen positive earnings estimate revision of 17 cents over the past 30 days for the next year and has an expected earnings growth rate of 8.60%. It has a Zacks Rank #1 and a Growth Style Score of A.

Singapore-based Broadcom Limited (NASDAQ:AVGO) designs, develops and supplies a range of complex digital and mixed signal complementary metal oxide semiconductor-based devices and analog III-V based products worldwide. The stock saw earnings estimate revision of $1.99 for the current fiscal over the past 30 days and has an expected earnings growth rate of 18.69%. Broadcom has a Zacks Rank #1 and a Growth Style 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 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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