It's been more than 10 months since the launch of my Mid-Cap Dividend Growers Portfolio, and high time for an update. Mid-caps are an area of the market that I've typically ignored, because it's the smaller and microcap names that I find most interesting. However, the idea of identifying dividend growers is interesting to me in any asset class, so I endeavored to put together a tracking portfolio of mid-cap companies that also increase their payouts, in order to see if they could outperform their peers over time.
The rather stringent screening criteria (below) revealed just 20 qualifiers:
- $2 billion to $10 billion in market capitalization
- Dividend increases in at least each of the past five years
- Five Year dividend growth rate minimum 5%
- Long-term debt-to-equity ratios below 50%
- Dividend-payout ratios below 50% for the trailing 12 months and last two fiscal years
- Minimum yield: 1.5%
So far, so good, the portfolio is up about 14.5% versus 11% for the S&P Mid Cap 400 Index. Now, that is not enough time to declare this screening experiment a success, however it is at the very least encouraging.
For one thing, this has been a fairly steady group of companies. After incorporating dividends, just one name, Snap-on (SNA) (-10%) is in negative territory. There are no huge winners so far; First American Financial (FAF) (+47%) and FLIR Systems (FLIR) (+36%) are the only names with returns in excess of 30%. This early performance is remarkably boring; in any portfolio of 20 companies, I'd expect at least a few to tank, and a handful to skyrocket, but this portfolio has been remarkably boring and steady. That's not a bad thing.
Fifteen of the companies have raised their dividends since last May, with the average increase 7.5%. Associated Bancorp (ASB) (+6%) has increased the dividend twice. Of the five that have not raised dividends since last May, three of them, Expeditors International (EXPD) (+21%), Manpower Group (MAN) (+18%), and International Bancshares (IBOC) (+13%) pay semiannual dividends instead of quarterly, giving them fewer opportunities over the past 10 months to up their payouts. The others that have not increased their dividends are Williams Sonoma (WSM) (+2%) and Old National Bancorp (ONB) (+7%). We'll see if that changes in the coming months.
The remaining names in the portfolio include:
Bunge Ltd (BG) (+8%)
Tractor Supply Co (TSCO) (+17%)
Robert Half International (RHI) (+26%)
Gentex (GNTX) (+17%)
BOK Financial (BOKF) (+22%)
Reliance Steel & Aluminum (RS) (+20%)
Prosperity Bancshares (PB) (+16%)
MB Financial (MBFI) (flat)
Texas Roadhouse (TXRH) (+21%)
Lancaster Colony (LANC) (+1%)
Washington Federal (WAFD) (+9%)
Talk about boring, but sometimes slow and steady wins the race. Ten months in, it is too early to declare mid-cap dividend growers a winning strategy, but the experiment has been worthy.