Buy These 5 Dividend Growth Stocks as U.S. Inflation Rate Hits 3%

With the U.S. government having released its first economic data last Friday since the shutdown began, America’s inflation rate was revealed to have reached 3%. Specifically, the September CPI inflation report showed that consumer prices rose 0.3% in September, which drove the annual rate of inflation from 2.9% to 3%, the highest since January, according to the latest data released by the Bureau of Labor Statistics (as reported by CNN Business).

Amid the rising inflation, dividend growth stocks offer an opportune investment. Their regularly increasing payouts can help offset the annual inflation rate, preserving real purchasing power. Companies with a history of raising dividends often exhibit strong financial health, providing a defensive hedge against economic uncertainty.

In fact, 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 such dividend growth stocks — Vertiv (VRT), Taiwan Semiconductor (TSM), Oracle (ORCL), Lam Research (LRCX) and Elbit Systems (ESLT) — which could be solid choices for your portfolio.

Why Is Dividend Growth Better?

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 as well as stock market volatility. At the same time, these offer downside protection with their consistent increase 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 strong history of dividend growth suggests a likely increase ahead.

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 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 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 more than 7,700 stocks to just 12.

Here are five of the 12 stocks that fit the bill:

Ohio-based Vertiv is a leading global provider of critical digital infrastructure and services for data centers, communication networks, and commercial and industrial environments. The Zacks consensus estimate for VRT’s 2025 revenues suggests a year-over-year improvement of 27.5%. The stock boasts a long-term (three-to-five years) earnings growth rate of 30% and has an annual dividend yield of 0.08%.

VRT currently carries a Zacks Rank #2 and has a Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Taiwan-based Taiwan Semiconductor is the world's largest dedicated integrated circuit foundry. The consensus estimate for TSM’s 2025 revenues implies a year-over-year improvement of 33.8%. The stock boasts a long-term earnings growth rate of 29.2% and has an annual dividend yield of 0.88%.

TSM currently holds a Zacks Rank #2 and has a Growth Score of B.

Texas-based Oracle is one of the largest enterprise-grade database, middleware, and application software providers. The consensus estimate for ORCL’s fiscal 2026 revenues suggests a year-over-year improvement of 16.5%. The stock boasts a long-term earnings growth rate of 17.2% and has an annual dividend yield of 0.71%.

ORCL currently holds a Zacks Rank #2 and has a Growth Score of B.

California-based Lam Research supplies wafer fabrication equipment and services to the semiconductor industry. The consensus estimate for LRCX’s fiscal 2026 revenues implies a year-over-year improvement of 11.9%. The stock boasts a long-term earnings growth rate of 19.6% and has an annual dividend yield of 0.69%.

LRCX currently sports a Zacks Rank #1 and has a Growth Score of A.

Israel-based Elbit Systems provides a wide range of defense-related airborne, ground and command, control and communications programs throughout the world. The consensus estimate for ESLT’s 2025 revenues suggests a year-over-year improvement of 16.4%. The stock boasts a long-term earnings growth rate of 23.3% and has an annual dividend yield of 0.51%.

ESLT currently holds a Zacks Rank #2 and has a Growth Score of A.

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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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This article originally published on Zacks Investment Research (zacks.com).

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