In this article we’ll take a look at the Top 10 Earnings Growth Stocks with Dividends for 2021. Click to skip ahead and see the Top 5 Earnings Growth Stocks with Dividends for 2021.
There are plenty of metrics one can use to evaluate companies and uncover promising investment ideas, some of which may have more or less relevance depending on the industry or growth stage of a company. One of our favorites, and one which our subscribers have made tremendous gains off, is hedge fund sentiment (see more below).
Another reliable indicator is a company’s earnings per share, which provides a quick glimpse into a company’s profitability and is a key driver of share prices. Earnings power also plays a major role in a company’s ability to make dividend payments to its shareholders, giving them a little slice of the company’s profits, so the two very much go hand-in-hand.
With the coronavirus pandemic in full swing, earnings have fallen heavily across the board and may not recover until 2022, making standard comparisons and analyses difficult. Bank of America projects the S&P 500’s EPS will flop by 23% this year and won’t make a full recovery to 2019 levels next year either.
To uncover some world-class earnings growth stocks we turned to Rajiv Jain’s GQG Partners, a Florida-based boutique investment firm that was founded in 2016 by Mr. Jain following a successful two-decade run at Vontobel Asset Management. During his time at Vontobel, the firm raised its assets under management to $50 billion from just $400 million, and Mr. Jain has enjoyed similar explosive growth with his own firm, having grown AUM to over $30 billion (through March 2020) in less than four years. GQG focuses its investments on companies with strong earnings growth and great long-term prospects.
GQG Partners’ Emerging Markets Equity Fund, which is one of its five strategies, has delivered volatile returns since its 2017 inception, returning 31.60% in its first year before losing 17.43% in 2018. The strategy was a winner again in 2019 with returns of 19.65%. After a rough start to 2020, the strategy had a compound annual return of 4.4% through April 2020.
There’s a very good reason why we pay close attention to hedge fund sentiment before making investment decisions. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, though the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Let’s check out ten of GQG Partners’ top stock picks, which could be poised for strong and sustainable earnings growth in the coming years, which could likewise trickle down to their dividend payouts.
10. Progressive Corp (NYSE:PGR)
Progressive Corp (NYSE:PGR) kicks off our list, with GQG Partners opening a new stake in the auto insurer during Q3, buying 3.36 million shares. It’s not surprising that GQG has taken note of PGR given the company’s rapid earnings growth over the last three years following a decade of mostly flat earnings. Progressive hit $6.75 in EPS in 2019, nearly 4x greater than its earnings in 2016. In addition to its variable annual dividend payout, which amounted to $2.25 in January 2020, Progressive also began paying out a quarterly dividend of $0.10 beginning last year.
In its Q2 investor letter, Francois Rochon’s Giverny Capital stated that while cars should become safer and accidents are likely to decline in the future with wider adoption of self-driving vehicles, they are also becoming more expensive to repair, which should keep insurance rates high and allow Progressive to continue capitalizing on its industry leading margins. PGR was Giverny Capital’s 5th-largest 13F holding on September 30.
9. Newmont Corp (NYSE:NEM)
Gold mining company Newmont Corp (NYSE:NEM), which has grown its EPS over each of the last three years, is up next. GQG Partners owned 5.23 million NEM shares at the end of Q3, 23% more than it did in the middle of 2020. Newmont’s EPS hit $3.82 in 2019, a greater than 6-fold increase from the year before and its best performance since 2010 thanks to the price of gold soaring through 2019, a trend which has continued in 2020.
First Eagle Investment Management praised Newmont’s leadership and strong balance sheet in its Q2 investor letter and pointed out that while many companies have been slashing their dividend payments this year, Newmont had instead raised its quarterly payouts by 79% (at the time). Newmont hiked its quarterly dividend by another 60% in October, giving NEM shares a forward yield of 2.74%.
8. Lockheed Martin Corp (NYSE:LMT)
After a brief earnings blip in 2017, aerospace giant Lockheed Martin Corp (NYSE:LMT) returned to massive growth over each of the last two years, hitting a record $22.09 EPS in 2019. GQG Partners owned a $471 million stake in LMT on September 30, increasing its position by 44% in Q3 to 1.23 million shares.
Lockheed recently hiked its quarterly dividend payments by 8% to $2.60, which provides an annual yield of 2.78%. The company’s payout ratio has returned to comfortable levels after briefly rising above 1.0 in 2017, and should be in no danger any time soon given Lockheed’s immense backlog and $6 billion in free cash flow.
7. Visa Inc (NYSE:V)
Rajiv Jain’s GQG raised its stake in Visa Inc (NYSE:V) by 4% during Q3, to 3.74 million shares. The 6th most popular stock among hedge funds, Visa grew earnings each year between 2017 and 2019 before experiencing a slight dip during its fiscal 2020, which ended in September. That can certainly be overlooked given the circumstances, including massive declines in cross-border volumes and the associated fees that accompany them. Visa raised its quarterly dividend payments by 6.66% to $0.32 earlier this year and maintains a miniscule payout ratio of about 0.25.
6. UnitedHealth Group Inc (NYSE:UNH)
Closing out the first-half of our list is UnitedHealth Group Inc (NYSE:UNH), which GQG Partners owned 2.65 million shares of on September 30, 25% more than it did on June 30. The health insurer and primary care provider has grown its earnings per share for 11 consecutive years, achieving a 6-fold increase during that time to $14.55 in 2019.
UNH has in turn been able to greatly increase its dividend payments during that time, from a miniscule $0.03 quarterly payment in 2009 to $1.25 this year after another 15.7% hike in June. In its Q3 investor letter, Polen Capital noted that it expects UnitedHealth to continue growing EPS in the low-to-mid-teens range going forward.
Click to continue reading and see the Top 5 Earnings Growth Stocks with Dividends for 2021. Disclosure: None. Top 10 Earnings Growth Stocks with Dividends for 2021 is originally published at Insider Monkey.
