7 Under the Radar Dividend Growth Stocks With Upside Potential

Stocks to buy

With volatile markets, investors may want to focus their attention on under the radar dividend growth stocks. These are companies that growth revenue and, or profits at a faster rate than the broader market. At the same time, they provide dividend payments, enabling a best-of-both-worlds.

As for ultimate growth potential, these under the radar dividend growth stocks may have the potential to create double-digit gains over the next year or two. Some market ideas might take a bit longer than others, simply based on their underlying industry. Nevertheless, these ideas bring balance to the table. If you don’t know what direction to go, grab both capital gains and income with these under the radar dividend growth stocks.

WSO Watsco $241.47
AOS A.O. Smith $49.04
TXN Texas Instruments $148.34
INFY Infosys $17.81
SPNS Sapiens International $18.42
MGRC McGrath RentCorp $83.65
UPS United Parcel Service $161.68

Watsco (WSO)

A photo of a paper with a chart and the word "Dividends" written on it, with a pen and calculator resting on top of it.

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Billed as the largest distributor of air conditioning, heating and refrigeration equipment, Watsco (NYSE:WSO) provides everyday relevance for millions of households. Unfortunately, this narrative hasn’t helped WSO much, with shares dropping almost 16% on a year-to-date basis. Still, this company which usually lurks in the shadows makes for one of the best under the radar dividend growth stocks.

First, let’s talk about the passive income. According to Dividend.com, WSO features a forward yield of 3.43%. This compares favorably to the Dow Jones Industrials average yield of 2.12%. Moreover, Watsco has nine years of consecutive dividend increases. Second, the financials really shine for Watsco. Owning robust strengths across the board, the company has higher-than-average performance stats for revenue expansion and profitability. Plus, the industrial equipment and products firm has a return on equity of 27.3%. This compares favorably to nearly 88% of the competition, making WSO a high-quality business.

Looking ahead, WSO should easily move 10% higher from the current price over the next two years.

A.O. Smith (AOS)

A photo of small bubbles in a container of water.

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A.O. Smith (NYSE:AOS) enjoys a reputation as one of the world’s leading providers of water heating and water treatment solutions. Given the pertinence of its underlying business, A.O. Smith benefits from some magnitude of inelastic demand. Still, this framework has not been beneficial for AOS stock, which slipped over 41% since the start of this year.

Nevertheless, AOS may qualify for one of the best under the radar dividend growth stocks to buy, at least for patient investors. First, A.O. Smith features a forward yield of 2.29%. To be fair, this metric slips slightly lower than the Industrials average yield of 2.12%. However, the company enjoys 30 years of consecutive dividend increases. That’s certainly not a status A.O. Smith will give up without a fight.

On the financials, the company enjoys strong growth and earnings trajectories. For instance, its three-year free cash flow (FCF) growth rate stands at 18.4%, ranking better than nearly 65% of the competition. Even better, A.O. Smith has a return on equity of 28%, reflecting a high-quality business (like Watsco above).

Moving forward, AOS easily has the potential to rise 10% quickly should economic conditions normalize.

Texas Instruments (TXN)

semiconductor stocks Close-up electronic circuit board. technology style concept. representing semiconductor stocks

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Texas Instruments (NASDAQ:TXN) designs and manufactures semiconductors and various integrated circuits, which it sells to electronics designers and manufacturers globally. Unfortunately, the global supply chain disruption, stemming from the coronavirus pandemic, meant that TXN struggled this year. Still, it’s not a horrific outing for Texas Instruments, with shares down 19% YTD.

If you can overlook the double-digit losses, which again isn’t that bad compared to the Nasdaq Composite’s performance, you might come away with the impression that TXN represents one of the under-the-radar dividend growth stocks to buy. First, the company carries a forward yield of 3.2%. This contrasts favorably with the technology sector’s average yield of 1.37%. Also, TXN enjoys 18 years of consecutive dividend increases.

What’s more, Texas Instruments features myriad financial strengths across the board. Along with solid growth and excellent profitability metrics when stacked up against the semiconductor industry, TXN’s return on equity pings at 66%. That’s above nearly 99% of its peers, reflecting incredible quality.

Once circumstances normalize, you’re looking at TXN being up 20% from here easily and quickly.

Infosys (INFY)

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Infosys (NYSE:INFY) provides business consulting, information technology and outsourcing services. Further, the underlying region represents a major growth market. Experts project that the Indian economy will expand at an average real GDP growth rate of 6% between 2022 and 2030. Sadly, this compelling potential fails to convince Wall Street. Since the beginning of this year, INFY fell over 28%.

Still, investors with a long-term view should consider INFY as one of the under-the-radar dividend growth stocks to buy. On the passive income side, Infosys carries a forward yield of 2.25%. Though not the highest figure in town, it does rank better than the tech sector’s average yield. At the same time, Infosys doesn’t have a long track record of consecutive dividend increases so it’s something to note.

On the financials, it’s tough to beat Infosys. No matter where you look (balance sheet, revenue trajectories, earnings performances) INFY simply features a stacked profile. Significantly, the company has a return on equity of 31%, reflect top-notch business quality.

If you believe in the India upside narrative, INFY could be good for a 20% jump in two years’ time.

Sapiens International (SPNS)

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Sapiens International (NASDAQ:SPNS) develops computer software for the insurance industry. One of the fundamental drivers for SPNS is that generally speaking, insurance providers feature inelastic demand. No matter what’s going on with the economy, people need financial protection. However, as with other under-the-radar dividend growth stocks, the business narrative hasn’t helped in 2022.

SPNS shares fell a staggering 48%. Further, volatility has yet to die down, with the security declining over 11% in the trailing month. That said, Sapiens has a forward yield of 2.56%. Again, that’s conspicuously above the technology sector’s average yield of 1.37%. To be fair, though, the company only has two years of consecutive dividend increases.

For those looking for a great deal, Gurufocus.com labels SPNS significantly undervalued. It’s the same story with the other under-the-radar dividend growth stocks on this list. Sapiens benefits from above-sector-average growth and profitability metrics. Plus, the company features a return on equity of 13.4%, a very solid figure representing a quality business.

Certainly, SPNS requires some broader market stabilization. Once that happens, SPNS could easily fly higher 10% to 20%, if not more.

McGrath RentCorp (MGRC)

Glass jar of coins marked "dividends" to represent dividend stocks. stocks with dividends

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McGrath RentCorp (NASDAQ:MGRC) represents a diversified business-to-business rental company. Primarily, the company rents and sells relocatable modular buildings, storage containers and offices, electronic test equipment, and liquid and solid containment tanks and boxes. Featuring everyday commercial relevance, Wall Street finally rewarded one of these under-the-radar dividend growth stocks. Since the start of this year, MGRC gained 6%.

The hope here is that shares continue to rise steadily higher. Fundamentally, it can achieve this goal because of its 2.15% forward yield. No, it’s not the most generous yield. It’s even well below the real estate average yield of 4.46%. However, McGrath also brings the growth component to the mix, facilitating balanced reassurances for prospective stakeholders.

Now, about that growth. Data from Gurufocus.com reveals that McGrath’s three-year revenue growth rate stands at 7.4%. Further, its three-year book growth rate is 8.5%. Both rank better than at least 60% of the competition. As well, the company’s return on equity pings at 13.3%, superior to 64% of the industry.

Looking ahead, MGRC is a bit of a slower mover in the market. However, the combo of growth and yield make it one of the better names among under-the-radar dividend growth stocks.

United Parcel Service (UPS)

Envelopes with UPS logo on them. UPS stock.

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United Parcel Service (NYSE:UPS) long represented a vital cog in the global supply chain network. Sadly, though, this very narrative presents significant risks to the courier service. With a major rival recently disclosing negative impacts from macroeconomic headwinds, it’s possible that UPS could succumb to similar pressures.

For now, the company is doing its best to hold on, although shares did slip over 23% since the start of the year. Nevertheless, for those that are willing to take risks, UPS may offer an enticing profile among under-the-radar dividend growth stocks. Per Dividend.com, the company offers a forward yield of 3.72%. That’s higher than the broader Industrials average yield of 2.12%.

Despite wider fundamental concerns, UPS enjoys overall strong financials. For instance, the company’s three-year book growth rate stands at 66.9%, better than nearly 98% of the competition. As well, UPS has a return on equity of 79.5%, ranked better than 96% of its peers.

Predicting chart growth presents vagaries since UPS ties in with macro dynamics. Still, if circumstances normalize, it should be good for at least 10% growth in the next year or two.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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