10 Best GARP Stocks That Pay Dividends

In this article, we discuss 10 best GARP stocks that pay dividends.

If there is one thing the market has taught investors this past year, it is the importance of diversifying portfolios to reduce risk. Choosing stocks in different economic conditions has consistently posed challenges for investors because what works in one market may not work in another. For example, growth and value equities have exhibited varied performances over different time periods and market conditions, making them equally popular among investors. So, combining the elements of both strategies can offer investors a much-needed way out from traditional investment plans. This is where the GARP strategy comes in. Growth at a Reasonable Price, or GARP, is a relatively lesser-known investment approach that seeks to identify companies with sustainable earnings growth and attractive valuations relative to their growth prospects. These companies may operate in industries or sectors with favorable growth trends or possess competitive advantages that can drive their future growth.

Popularized by Peter Lynch, the GARP strategy’s main goal is to avoid the extremes of either growth or value investing, which leads investors to growth-oriented stocks with relatively low price-to-earnings ratios in normal market conditions. If successfully identified, these stocks have the potential to generate positive returns for shareholders. Historically, the S&P 500 GARP Index has delivered higher returns than its underlying benchmark. The index tracks the performance of companies with consistent fundamental growth, reasonable valuation, and strong earnings power. Some of the best GARP stocks in the index are Alphabet Inc. (NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT), and Meta Platforms, Inc. (NASDAQ:META).  In the past 12 months, the index gained 12.7%.

According to a report by S&P Dow Jones Indices, the S&P 500 GARP delivered an annual average return of 13.2% from June 1995 to June 2019, compared with a 9.81% growth of the S&P 500. During this period, the S&P 500 Growth Index and the S&P 500 Enhanced Value Index returned 10.41% and 11.83%, respectively. The report also mentioned that the GARP Index’s risk-adjusted returns during the above-mentioned period were higher than growth and value indices.

Also read: 12 Best Fast Growth Stocks to Buy Now

CPI’s latest report shows that consumer prices rose 4% this May, down from 4.9% in April. This cooling inflation also signals a pause in interest rate hikes, giving investors room to take a breather from the longest streak of increases. However, this does not imply that the stock market is out of the perils as investors still need meticulous investment plans. BMO Capital’s chief strategist Brian Belski advised Canadian investors to follow the GARP strategy this year. Here are some comments from the analyst:

“Growth at a Reasonable Price (GARP) remains one of our key style preferences for Canadian equities in 2023. Furthermore, earnings growth and revision trends are broadly consistent with the S&P 500, suggesting there are likely many opportunities developing in Canada to implement a growth at a reasonable price strategy.”

CNBC report also highlighted remarks of BMO’s analysts about the possible investment strategies to navigate the market uncertainties in the US. The report mentioned that investors should use GARP and dividend growth approaches in the current financial environment. Dividend stocks have proved their mettle in previous inflationary periods, becoming popular among investors. To know more about dividend stocks, investors can have a look at 12 Best Blue Chip Dividend Stocks To Buy.

In view of this, we will discuss the best GARP stocks that pay dividends in this article.

Photo by nick chong on Unsplash

Our Methodology:

GARP stocks have reasonable valuations and strong growth potential, which means that their P/E ratios are not necessarily as low as value stocks. For this list, we used the S&P 500 GARP Index (SPXGARPP) and identified dividend stocks with P/E ratios below 32 and EPS growth estimates for FY23 above 6%. These stocks were ranked based on the number of hedge funds having stakes in them, according to Insider Monkey’s database of 943 hedge funds as of Q1 2023.

10 Best GARP Stocks That Pay Dividends

10. Nucor Corporation (NYSE:NUE)

Number of Hedge Fund Holders: 39

P/E Ratio as of June 14: 5.89

Estimated EPS Growth for FY23: 16.23%

Nucor Corporation (NYSE:NUE) is an American company that specializes in the production of steel and other related products. In the first quarter of 2023, the company posted a GAAP EPS of $4.45, which beat analysts’ estimates by $0.66. Its estimated EPS growth for FY23 stands at 16.23%, which makes it one of the best GARP stocks on our list. Moreover, the stock trades at a price-to-earnings ratio of 5.89, as of June 14.

On June 8, Nucor Corporation (NYSE:NUE) declared a quarterly dividend of $0.51 per share, which was in line with its previous dividend. In 2022, the company extends its dividend growth streak to 50 years. The stock has a dividend yield of 1.35%, as recorded on June 14.

Nucor Corporation (NYSE:NUE) is a part of the S&P 500 GARP Index alongside Alphabet Inc. (NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT), and Meta Platforms, Inc. (NASDAQ:META).

In June, Wolfe Research upgraded Nucor Corporation (NYSE:NUE) to Peer Perform, appreciating the company’s strong free cash flow and infrastructure exposures.

At the end of Q1 2023, 39 hedge funds tracked by Insider Monkey reported having stakes in Nucor Corporation (NYSE:NUE), the same as in the previous quarter. These stakes have a collective value of over $440.2 million. Among these hedge funds, Citadel Investment Group was the company’s leading stakeholder.

9. United Parcel Service, Inc. (NYSE:UPS)

Number of Hedge Fund Holders: 39

P/E Ratio as of June 14: 14.14

Estimated EPS Growth for FY23: 10.73%

United Parcel Service, Inc. (NYSE:UPS) is a Georgia-based multinational shipping company that also specializes in supply chain management operations. In May, Deutsche Bank raised its price target on the stock to $212 and maintained a Buy rating on the shares. The firm appreciated the company’s management and its efforts to prioritize profitable growth.

In the first quarter of 2023, United Parcel Service, Inc. (NYSE:UPS) generated strong cash. The company’s operating cash flow came in at over $2.3 billion and its free cash flow amounted to $1.77 billion. Analysts expect the company to show a 10.73% EPS growth for FY23. With a P/E ratio of 14.14, UPS is one of the best GARP stocks on our list.

United Parcel Service, Inc. (NYSE:UPS) offers a quarterly dividend of $1.62 per share and has a dividend yield of 3.65%, as of June 14. The company has been raising its dividends consistently for the past 21 years.

As of the close of Q1 2023, 39 hedge funds in Insider Monkey’s database held stakes in United Parcel Service, Inc. (NYSE:UPS), up from 36 in the previous quarter. The consolidated value of these stakes is over $476 million.

Vulcan Value Partners made the following comment about United Parcel Service, Inc. (NYSE:UPS) in its Q1 2023 investor letter:

“We purchased United Parcel Service, Inc. (NYSE:UPS) during the quarter. UPS is a global parcel shipment and logistics company which competes in a global oligopoly with high barriers to entry. UPS’ integrated network is more efficient than its closest peer, as evidenced by its margin profile, free cash flow conversion, and returns on invested capital. The company’s management team is focusing on profitable growth through its Better, not Bigger strategy which should improve margins and future opportunities for the company. The stock price was down due to market concerns about customer concentration and Amazon’s potential entry into the parcel delivery and logistics market. Additionally, UPS Teamsters’ labor agreement expires on July 31, 2023. The market fears a potential labor strike, significant wage inflation, and shippers moving volume to competitors due to concerns around potential service disruptions. We have incorporated these risks into our value, and we believe its stock price is still discounted.”

8. Pool Corporation (NASDAQ:POOL)

Number of Hedge Fund Holders: 41

P/E Ratio as of June 14: 20.45

Estimated EPS Growth for FY23: 15.10%

Pool Corporation (NASDAQ:POOL) is next on our list of the best GARP stocks that pay dividends. The company is based in Louisiana and distributes swimming pool supplies, parts, and related products. On May 4, the company declared a 10% hike in its quarterly dividend to $1.10 per share. This marked the company’s 12th consecutive year of dividend growth. The stock’s dividend yield on June 14 came in at 1.25%.

Pool Corporation (NASDAQ:POOL) generated $1.2 billion in revenues in Q1 2023 and its operating income came in at $145.8 million. The company’s operating cash flow amounted to over $103.2 million. It is expected to show a 15.10% EPS growth in FY23.

Oppenheimer maintained an Outperform rating on Pool Corporation (NASDAQ:POOL) with a $375 price target in April. The firm gave a neutral stance on the company’s performance and revenue in the previous quarters.

The number of hedge funds tracked by Insider Monkey owning stakes in Pool Corporation (NASDAQ:POOL) grew to 41 in Q1 2023, from 37 in the preceding quarter. These stakes are collectively valued at over $1.18 billion.

TimesSquare Capital Management mentioned Pool Corporation (NASDAQ:POOL) in its Q4 2022 investor letter. Here is what the firm has to say:

“Turning to detractors, Pool Corporation (NASDAQ:POOL) is a wholesale distributor of swimming pool supplies, equipment, and related leisure products. For the third quarter, Pool experienced steady growth in maintenance, repair, and renovation. That offset weaker new pool construction. Nevertheless, Pool’s shares dipped by -5% on this report given market concerns on housing and any housing-adjacent companies as interest rates rose.”

7. Chubb Limited (NYSE:CB)

Number of Hedge Fund Holders: 45

P/E Ratio as of June 14: 15.15

Estimated EPS Growth for FY23: 18.19%

Chubb Limited (NYSE:CB) is an American multinational insurance company that specializes in P&C insurance. In the first quarter of 2023, the company posted revenue of over $10 billion, which showed a 16% growth from the same period last year. Its operating cash flow for the quarter came in at over $2.25 billion. The company also paid $344 million to shareholders in dividends.

Chubb Limited (NYSE:CB) is currently trading at a price-to-earnings ratio of 15.15. Analysts expect the company’s EPS to grow 18.19% for FY23, which makes it one of the best GARP stocks on our list.

On May 17, Chubb Limited (NYSE:CB) declared a quarterly dividend of $0.86 per share, having raised it by 3.6%. Through this increase, the company stretched its dividend growth streak to 30 years. The stock’s dividend yield on June 14 came in at 1.79%.

At the end of March 2023, 45 hedge funds tracked by Insider Monkey had stakes in Chubb Limited (NYSE:CB), the same as in the previous quarter. These stakes have a collective value of over $1.8 billion. With roughly 3.5 million shares, Viking Global was the company’s leading stakeholder in Q1.

Ave Maria mentioned Chubb Limited (NYSE:CB) in its Q1 2023 investor letter. Here is what the firm has to say:

“Chubb Limited (NYSE:CB) is the world’s largest publicly traded P&C insurance company and a leading commercial lines insurer in the U.S. with operations in 54 countries and territories. Chubb is regarded as one of the most skilled property and casualty underwriters globally with an average P&C combined ratio of 90.8% between 2018 and 2022.”

6. American International Group, Inc. (NYSE:AIG)

Number of Hedge Fund Holders: 46

P/E Ratio as of June 14: 6.98

Estimated EPS Growth for FY23: 6.63%

American International Group, Inc. (NYSE:AIG) is a New York-based finance and insurance company that provides related services to its consumers. The company’s annual EPS has shown an 81.6% growth over the past five years and is expected to grow by 6.63% for FY23. The stock currently trades at a P/E ratio of 6.98, becoming one of the best GARP stocks on our list. Some other popular stocks in this category include Alphabet Inc. (NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT), and Meta Platforms, Inc. (NASDAQ:META).

On May 4, American International Group, Inc. (NYSE:AIG) announced a 12.5% hike in its quarterly dividend to $0.36 per share. The stock has a dividend yield of 2.56%, as of June 14. The company reported a strong cash position in the first quarter of 2023 as it returned nearly $241 million to shareholders in dividends.

According to Insider Monkey’s database of Q1 2023, 46 hedge funds owned stakes in American International Group, Inc. (NYSE:AIG), worth collectively nearly $2 billion.

5. D.R. Horton, Inc. (NYSE:DHI)

Number of Hedge Fund Holders: 46
P/E Ratio as of June 14: 7.67
Estimated EPS Growth for FY23: 11.16%

D.R. Horton, Inc. (NYSE:DHI) is a Texas-based home construction company that is one of the largest homebuilders in the country by volume. It is one of the best GARP stocks on our list with a P/E ratio of 46 and estimated EPS growth of 11.16%. Moreover, the company’s EPS has shown a 43.2% growth in the past five years.

D.R. Horton, Inc. (NYSE:DHI) is also a strong dividend payer as the company holds a 10-year streak of dividend growth. It currently pays a quarterly dividend of $0.25 per share for a dividend yield of 0.87%, as recorded on June 14.

In May, Deutsche Bank initiated its coverage on the stock with a Buy rating and a $150 price target, appreciating the company’s strong sales momentum.

D.R. Horton, Inc. (NYSE:DHI) was a part of 46 hedge fund portfolios in Q1 2023, the same as in the previous quarter, according to Insider Monkey’s database. The stakes owned by these hedge funds have a total value of over $1.3 billion.

Third Avenue Management mentioned D.R. Horton, Inc. (NYSE:DHI) in its Q1 2023 investor letter. Here is what the firm has to say:

“The primary contributors to performance during the quarter included the Fund’s investments in leading US-based homebuilders (Lennar Corp. and D.R. Horton, Inc. (NYSE:DHI)), UK-centric real estate holdings (Berkeley Group and Savills plc), and Industrial and Logistics REITs (Prologis, First Industrial and Segro plc).

The Fund’s other activity during the period was modest in nature and included slight reductions to certain holdings for portfolio management purposes (Lennar Corp., D.R. Horton, FNF Group, Wharf Holdings, and AMH).

After factoring in this activity, the Fund had 41% of its capital invested in Residential Real Estate companies with strong ties to the U.S. and U.K. residential markets—where there remain supply deficits after years of under-building. In conjunction with near record-low inventory levels, there also remains significant demand for new products at affordable price points (both for-sale and for-rent). Therefore, these Fund holdings seem positioned to benefit from a multi-year recovery in residential construction and ancillary activities, particularly as mortgage rates stabilize for conforming loans. At the end of the quarter, these holdings included a diversified set of businesses including homebuilding (Lennar Group and DR Horton), timberland ownership and management (Weyerhaeuser and Rayonier), planned development (Berkeley Group and Five Point Holdings), the ownership and development of rental properties (AMH, Grainger plc, and Ingenia Communities), as well as other ancillary businesses (Lowe’s and Trinity Place Holdings).”

4. QUALCOMM Incorporated (NASDAQ:QCOM)

Number of Hedge Fund Holders: 69
P/E Ratio as of June 14: 13.16
Estimated EPS Growth for FY23: 8.31%

QUALCOMM Incorporated (NASDAQ:QCOM) is an American tech company that manufactures semiconductors and software and also provides wireless-related services. On April 12, the company declared a quarterly dividend of $0.80 per share, which was in line with its previous dividend. It has raised its dividends for 20 years in a row. The stock’s dividend yield on June 14 came in at 2.58%.

QUALCOMM Incorporated (NASDAQ:QCOM) reported an annual EPS growth of 47.4% over the past five years. In view of this and its current performance, analysts expect the company to show an 8.31% EPS growth in fiscal year 2023. With a P/E ratio of 13.16, QCOM is one of the best GARP stocks on our list.

As per Insider Monkey’s database for Q1 2023, 69 hedge funds tracked by Insider Monkey held stakes in QUALCOMM Incorporated (NASDAQ:QCOM), worth collectively over $1.74 billion.

3. The Cigna Group (NYSE:CI)

Number of Hedge Fund Holders: 79
P/E Ratio as of June 14: 12.09
Estimated EPS Growth for FY23: 24.83%

The Cigna Group (NYSE:CI) is an American multinational managed healthcare and insurance company, based in Connecticut. The company posted strong revenues in Q1 2023 which has resulted in positive analyst sentiment for FY23. Its revenue for the quarter came in at $46.5 billion, up 5.7% from the same period last year. The company’s EPS is projected to grow by 24.8% in fiscal year 2023.

The Cigna Group (NYSE:CI), one of the best GARP stocks on our list, pays a quarterly dividend of $1.23 per share. The stock has a dividend yield of 1.81%, as of June 14. The stock currently trades at a price-to-earnings ratio of 12.09.

At the end of Q1 2023, 79 hedge funds tracked by Insider Monkey owned stakes in The Cigna Group (NYSE:CI), worth over $3 billion collectively.

Artisan Partners mentioned the performance of The Cigna Group (NYSE:CI) in its Q1 2023 investor letter. Here is what the firm has to say:

“The Cigna Group (NYSE:CI) delivered strong operating results that came in well ahead of the company’s initial guidance, yet the stock has continued to sell off since the beginning of 2023. It seems there are a few reasons for it: 1) concerns over the government targeting pharmacy benefit managers and trying to directly negotiate drug prices under the president’s new budget, 2) a potential normalization of elective procedures that increases medical costs, 3) a rotation by dedicated health care investors toward medical technology and technology areas and away from the safety of big pharma and HMOs, 4) disenrollment trends as it relates to the commercial book of business heading into a potential downturn, and 5) selling in the space as we approach another presidential election in 2024. Pick your poison, but the selling has taken the stock price back to its levels of mid-2022. Our investment case hasn’t changed. Cigna is one of the few managed care organizations in the US with the scale and size to compete effectively. In 2022, free cash flow was $7.4 billion, up $1.3 billion from 2021. Cigna paid down $3.5 billion of debt, repurchased $7.6 billion in stock and sold its life, accident and supplemental benefits business in Asia to Chubb that helped fund the share repurchases. In short, the business in performing well, and management is smartly allocating capital. Additionally, the stock is selling for less than 11X next year’s earnings, which is inexpensive.”

2. Applied Materials, Inc. (NASDAQ:AMAT)

Number of Hedge Fund Holders: 84
P/E Ratio as of June 14: 18.40
Estimated EPS Growth for FY23: 7.39%

Applied Materials, Inc. (NASDAQ:AMAT) is a California-based company that specializes in semiconductor chips. It is among the best GARP stocks on our list with a P/E ratio of 18.40, as of June 14.

Applied Materials, Inc. (NASDAQ:AMAT) has been raising its dividends consistently for the past six years. The company offers a quarterly dividend of $0.32 per share and has a dividend yield of 0.92%, as recorded on June 14.

Applied Materials, Inc. (NASDAQ:AMAT) was a popular buy among hedge funds in Q1 2023, as 84 funds in Insider Monkey’s database owned stakes in the company, up from 70 a quarter earlier. Their collective stake value is $4.4 billion.

1. Apple Inc. (NASDAQ:AAPL)

Number of Hedge Fund Holders: 131
P/E Ratio as of June 14: 31.18
Estimated EPS Growth for FY23: 6%

Apple Inc. (NASDAQ:AAPL) tops our list of the best GARP stocks that pay dividends. The stock currently has a P/E ratio of 31.18 and its estimated EPS growth is 6% for FY23. Over the past five years, the company’s EPS has grown by 21.6%.

Apple Inc. (NASDAQ:AAPL) pays a quarterly dividend of $0.24 per share and has raised its payouts for 11 years in a row. The stock’s dividend yield on June 14 came in at 0.52%.

Apple Inc. (NASDAQ:AAPL) was a part of 131 hedge fund portfolios at the end of Q1 2023, as per Insider Monkey’s database. These stakes are collectively worth over $165.2 billion. Warren Buffett’s Berkshire Hathaway was the company’s leading stakeholder in Q1.

Here’s what Fred Alger Management said about Apple Inc. (NASDAQ:AAPL) in its Q1 2023 investor letter:

“Apple Inc. (NASDAQ:AAPL) is a leading technology provider in telecommunications, computing, and services. Apple’s iOS operating system is the company’s unique intellectual property and competitive strength. This software drives particularly tight engagement with consumers and enterprises, which is fostering the growing purchase of high margin services like music, apps, and Apple Pay. While iPhone sales were down year-over-year (YoY). services revenues grew 7% YoY which was slightly above analyst estimates. Company earnings were also better-than-anticipated due to lower input costs, such as memory chips and cost control initiatives. Aside from production disruptions, negative sentiment had also weighed on shares as investors questioned how an economic slowdown would affect consumer demand for Apple products in 2023. However, management projected an acceleration in earnings for the fiscal first quarter, where they noted that iPhone and services growth should remain strong, along with encouraging impacts around product mix, lower input costs, and continued cost controls.”

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Disclosure. None. 10 Best GARP Stocks That Pay Dividends is originally published on Insider Monkey.