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Wall Street has been on a historic rally this year, with all three major bourses hitting new milestones. However, concerns over elevated valuation, geopolitical tensions and uncertainty about Fed’s further rate cuts are expected to weigh on investors’ sentiment. These have raised the appeal for popular dividend investing.
Though the strategy doesn’t offer dramatic price appreciation, it is a major source of consistent income for investors in any type of market. This approach offers a unique blend of income and growth potential, appealing to a broad range of investors. Additionally, it can provide a sense of security in times of market uncertainty or downturns, as dividend-paying stocks can reduce the volatility of a portfolio and tend to outperform in a choppy 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 that have high yields. We have selected five dividend growth stocks — InterDigital, Inc. IDCC, ResMed Inc. RMD, Greenbrier Companies Inc. GBX, Charles River Associates CRAI and Kontoor Brands KTB — that seem excellent choices for your portfolio.
Why is Dividend Growth Better?
Stocks with 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 increases 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 a 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 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 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 has 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 10.
Here are five stocks that fit the bill:
Delaware-based InterDigital is a pioneer in advanced mobile technologies that enable wireless communications and capabilities. The company engages in designing and developing a wide range of advanced technology solutions, which are used in digital cellular and wireless 3G, 4G and IEEE 802-related products and networks. Estimates for IDCC’s earnings this year have risen by a whopping $1.69 over the past 30 days. It has an estimated earnings growth rate of 64.9%
InterDigital currently sports a Zacks Rank #1 and has a Growth Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.
California-based ResMed holds a major position as a designer, manufacturer and distributor of generators, masks and related accessories for the treatment of sleep-disordered breathing and other respiratory disorders worldwide. The stock saw a positive earnings estimate revision of 6 cents over the past 30 days for the fiscal year (ending June 2025) and has an expected earnings growth rate of 20.98%.
ResMed currently has a Zacks Rank #2 and a Growth Score of B.
Oregon-based Greenbrier is a leading supplier of transportation equipment and services to the railroad and related industries. The company delivered an average earnings surprise of 28.59% in the past four quarters and has an estimated growth rate of 4.8% for this fiscal year (ending August 2025).
Greenbrier has a Zacks Rank #1 and a Growth Score of A at present.
Massachusetts-based Charles River is one of the leading global consulting firms. It is engaged in providing economic, financial and management consulting services. The company saw a positive earnings estimate revision of 7 cents over the past 30 days for this year and has an expected earnings growth rate of 30.9%.
Charles River has a Zacks Rank #2 and a Growth Score of A.
Greensboro-based Kontoor Brands is an apparel company that designs, manufactures and distributes products. The company's brand consists of Wrangler, Lee, and Rock & Republic. The company delivered an average earnings surprise of 12.75% in the past four quarters and has a projected earnings growth of 13.1%.
Presently, Kontoor Brands has a Zacks Rank #2 and a Growth Score of B.
You can get the remaining 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.