Among the group of stocks that have established a history of regularly growing dividends each year, there are two that have broken out from bullish patterns and are at points to take a low risk position.
Analog Devices Pulls Back from Breakout
Analog Devices (NASDAQ:ADI) designs and manufactures integrated chips that process analog and digital signals. The company's products are used in the healthcare, automotive, defense and communications markets. ADI has grown its dividend since 2002, compounding its payout by more than 10% a year over the last decade. The stock currently yields 2.2% and should announce this year's annual dividend increase in mid-February.
Beginning on Election Day, and powered by a positive reaction to the earnings report in late November, the stock jumped nearly 20% through the end of the year. Since then and through the end of January, the stock tested resistance at 74.80 multiple times, building a bullish triangle formation before finally breaking out on the 27th. Over the last week, the stock has pulled back almost to the breakout point, providing an excellent risk-to-reward entry point.
The measured move on bullish triangles can be calculated by taking the distance between the resistance level and the first pullback to the upward-sloping trendline. In ADI's case, this projected measured move is 6.30 - the difference between 68.50 and resistance at 74.80 - which results in an expected gain of 8.4% to complete the breakout.
It would be very bullish if Analog Devices completes the measured move, although there's no guarantee that it will. On the other hand, an immediate pullback and follow through below the resistance point at 74.80 would be bearish for the stock.
Bank of the Ozarks Holding Right Above Cup & Handle Breakout
Bank of the Ozarks (NASDAQ:OZRK) has grown dividends every year since 1998 and every quarter since 2010. The regional banking has been expanding rapidly, with branches in 9 states including Florida, Texas, Arkansas and Georgia. The company has an excellent dividend growth record, with compounded growth rates above 20% over the last decade and over 25% over the last 5 years. The stock yields 1.2%; the company grew the dividend by 14.6% from 2015 to 2016.
The stock has formed a cup & handle over the last year, from which it finally broke out in late January. OZRK has pulled back to the breakout point near 54.60 over the last few days. If this stock can break above the prior high of 56.49, there's a chance the stock could complete the measured move. The measured move is calculated by taking the difference from the low of the cup to the breakout point - in this case, about 20 points - meaning that OZRK could hit $75, which is 36% above the current price.
As in ADI's case, it's always possible that OZRK's breakout may fail and the stock may drop back below the resistance level. If it does, the pattern would be unconfirmed until the stock either (1) drops below the low in the handle pattern or (2) confirms the pattern by breaking above resistance again.
Both of these dividend growth stocks have a good chance of providing nice capital gains for investors in the future. And investors holding these stocks will continue to be rewarded with increasing dividends going forward.
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Disclosure: I am/we are long OZRK.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I may also take a position in ADI in the near future.