Tomorrow marks one year since the launch of my Mid-Cap Dividend Growers Portfolio, which was designed to combine the tracking of an area of the market that I tend to ignore (mid-caps), along with a concept (dividend growth) that I pay a great deal of attention to. I've long been a proponent that dividends can be a better measure of company's health, or prosperity than earnings. Dividends really can't be manipulated the way earnings can, and what you see is what you get. In addition, companies can't fake dividend increases (for very long that is), nor can they knowingly raise dividends to unsustainable levels, for appearance sake, without repercussions should they need to cut or eliminate the dividend. The stringent screening criteria, below, used to design this portfolio 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%
The portfolio performed fairly well over the past year, and was up about 14.4% versus 10.8% for the S&P 400 Mid Cap Index. This group of companies had no big losers, in fact, after incorporating dividends, just four names, Snap-on Inc (SNA) (-12%), Manpower Group (MAN) (-4%), Williams-Sonoma (WSM) (-6%), and Washington Federal (WAFD) (-2%) were in negative territory.
Likewise, there were also no lights-out winners in the group either. FLIR Systems (FLIR) (+50%) was the best performer, followed by Expeditors International (EXPD) (+33%), Robert Half International (RHI) (+33%), First American Financial (FAF) (+30%), Texas Roadhouse (TXRH) , the only restaurant in the portfolio (+30%), Reliance Steel & Aluminum (RS) (+26%), and BOK Financial (BOKF) (+25%).
I've built a lot of tracking portfolios over the years, and this one had the lowest variability of returns. Normally, there are a couple of big winners that drive performance, and couple of names that tank badly, but that was not the case with Mid-Cap Dividend Growers.
All but once company, Old National Bancorp (ONB) (+7%) raised it's divided over the past year.
The remaining names in the portfolio include:
Bunge Ltd (BG) (+3%)
Tractor Supply Co (TSCO) (+9%)
Gentex (GNTX) (+15%)
Prosperity Bancshares (PB) (+14%)
Associated Ban-Corp (ASB) (+8%)
MB Financial (MBFI) (+1%)
Lancaster Colony (LANC) (+6%)
Old National Bancorp (ONB) (+7%)
I do plan on creating a new vintage of this portfolio, using the same criteria, and plan to roll it out next week.
