Top 10 Earnings Growth Stocks with Dividends for 2021

In this article we’ll take a look at the Top 10 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 5^th-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 6^th 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.

5. Equinix Inc (NASDAQ:EQIX)

The second-half of our list of dividend-paying earnings growth stocks begins with Equinix Inc (NASDAQ:EQIX), which Rajiv Jain’s GQG Partners owned 1.31 million shares of on September 30, an 11% quarter-over-quarter increase. Equinix has been able to grow its earnings over each of the last three years, more than tripling its EPS during that period.

The REIT, which operates a connected global data center platform, pays out a quarterly dividend of $2.66, giving it a yield of 1.52%, which is quite low for an REIT, though Equinix is hardly your average REIT. Its dividend payout ratio had been quite high for several years, but thanks to its recent earnings surge, the dividend looks very sustainable.

4. Mastercard Incorporated (NYSE:MA)

GQG Partners owned 3.08 million shares of Mastercard on September 30, valued at over $1.04 billion. If not for a miniscule earnings dip of less than 1% in 2017, Mastercard Incorporated (NYSE:MA) would be in the midst of an 11-year run of steadily rising earnings. Mastercard made up for that slight decline with two of its best years ever, more than doubling its EPS between 2017 and 2019.

Thanks to that earnings surge, Mastercard has been able to raise its quarterly dividend payments by 60% since 2018. However, as MA shares have risen by over 120% since the end of 2017, they actually yield even less now, at just 0.47%. With a low payout ratio of about 0.23, there is still plenty of potential for robust future dividend growth.

3. Microsoft Corporation (NASDAQ:MSFT)

GQG Partners owned just under 5.60 million shares of MSFT on September 30, a position valued at nearly $1.18 billion. We previously highlighted Microsoft Corporation (NASDAQ:MSFT) as one of 5 Stocks That Could Massively Grow Their Dividends in 2021 and Beyond, thanks to its low payout ratio and consistent earnings growth. Microsoft has grown its earnings in four of the last five years, including a massive EPS spike during its fiscal 2019, which bumped further in fiscal 2020. Microsoft’s dividend yields just over 1.00%, while its quarterly payments have increased more than four-fold since 2010.

2. Abbott Laboratories (NYSE:ABT) 

One of the 10 Best Growth Stocks To Buy Now According To Ray Dalio, Abbott Laboratories (NYSE:ABT) has grown its earnings significantly over the past two years after a volatile decade of earnings. Despite that volatility, the medical device company has been able to consistently raise its dividend payments in recent years, including accelerated boosts over the past two years. ABT shares now yield 1.34% and the company’s payout ratio is very manageable.

In its Q3 investor letter, Polen Capital praised Abbott’s resilience and noted that its consumer-facing businesses were able to grow by 10% in the first half of 2020. GQG Partners owned 14.51 million ABT shares at the end of Q3, giving it a $1.58 billion ownership stake in the company.

1. Nvidia Corp (NASDAQ:NVDA)

GPU maker Nvidia Corp (NASDAQ:NVDA) tops the list of earnings growth stocks with dividends for 2021, with GQG Partners owning just under 4.70 million shares valued at over $2.54 billion at the end of Q3. Even after a step back in 2019, Nvidia’s earnings were still more than 4x higher than what they were just four years earlier following a tremendous earnings growth spurt between 2016 and 2019. The gaming giant is also coming off a very strong Q3 during which it earned $2.91 per share, putting it on pace for record earnings in 2020.

Nvidia’s earnings surge has yet to translate into noteworthy dividend growth however, as the company has raised its dividend by an extremely conservative 14% over the past four years, giving it a paltry yield of 0.12%, which is also about what its payout ratio is. The potential is certainly there for a more significant dividend raise in the near future.

For more compelling investment ideas that hedge funds love, don’t miss the Top 11 Lithium and Battery Stocks to Buy Now.