These Are The Top 3 Sectors For Dividend Growth Investors Now

Thomas Hughes profile picture
Thomas Hughes


  • The second quarter earnings cycle is about to hit high gear but the outlook for growth is negative.
  • Even with the outlook for earnings growth negative and estimates falling it is still possible to find growth.
  • The Utilities, Real Estate, and Healthcare sectors are uniquely poised for growth and dividend growth in today's market.
  • The real asset appeal of these sectors adds to their attractiveness for long-term-oriented dividend growth investment.
  • This idea was discussed in more depth with members of my private investing community, The Technical Investor . Start your free trial today »

Finding Growth In A No-Growth Market

With the second quarter earnings cycle underway the question arises, what sectors should dividend growth investors be targeting? Growth in the second quarter is expected to be negative, estimates for future quarters has fallen and there is a risk the earnings recession that began in the first quarter could extend itself to three quarters.

My criteria for this analysis is simple: which sectors have the best outlook for growth this quarter, the clearest outlook for future earnings growth, and an expectation for earnings growth acceleration next year based on data compiled by and from FactSet Insight.

The impact of tariffs has had a terrible impact on earnings potential and nowhere is that more apparent than with companies whose revenue comes from abroad. During the first quarter cycle, S&P 500 (SPY) companies with more than 50% of their revenues from abroad saw their EPS fall double digits while those with most of their revenue from domestic sources saw their EPS increase.

While the trajectory of earnings growth is positive for the next six quarters, consensus estimates are falling and that is a weight that will keep stock market valuations in check. This makes dividends even more attractive as they may be the only positive returns investors get over the next few months.

From the technical perspective, an extreme bearish peak in MACD set last December and a wicked divergence in the same, coincident with the new all-time S&P 500 high, suggests the market will retest the December lows before too long.

Companies with shrinking earnings are more likely to decrease their distributions. That means choosing companies with domestic revenue sources is ultra-important for dividend and dividend-growth investors. It's not that companies with foreign-based revenue streams can't or won't raise their distributions, it means they aren't the best choices

With explosive earnings growth becoming ever elusive in today's market I expect dividend growth stocks will outperform the broad market over the next few years.

Are you positioned to profit from the capital gains and the ever-increasing Yield on Investment provided by dividend growth stocks?

At the Technical Investor, I dig deep into the market looking for the sectors and stocks best positioned to deliver the earnings and dividend growth it takes to drive double-digit capital returns.

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This article was written by

Thomas Hughes profile picture
I am the son of an Army helicopter pilot, a former chef, and a longtime market watcher and trader.I developed my trading style and market strategies writing analysis and commentary for I wrote daily analysis there for nearly a decade before venturing out on my own. I now write the Technical Investor, a market research newsletter where I take a technical approach to fundamental trading.In the Technical Investor, I keep abreast of economic trends and earnings outlook and then apply them to the market and the charts. In so doing, I root out the best sectors and companies for investment from the earnings growth perspective. As a trader, my main focus is the S&P 500 but I follow the broader market as well, gold, oil, the dollar, and cryptocurrencies. When it comes to investing my goal is buying strong dividend-paying stocks with earnings and dividends growth potential at the right technical times. I've found that this combination usually leads to capital gains, market-beating dividends, dividend growth, and an increasing yield on investment over the long term.

Disclosure: I am/we are long SPY. 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.

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