I admit to often ignoring the mid-cap area of the market, as I am most intrigued by smaller names that are not on most investors' radar. However, there are a host of names that fall between small and large that also may fly under the radar. A sizable number of these pay dividends, too.
I've long been intrigued by companies that increase their dividends over the years. I am a believer that dividends represent more than just cash returned to shareholders. While companies can fool investors by "massaging" earnings or announcing stock buybacks and not following through, dividend payouts are hard to manipulate.
Raising a dividend year in and year out can be a good indication not only of a company's financial health, but also of a confident management team. Firms can't "fake" dividend hikes, at least not for very long. Those that raise payouts to the point of unsustainability risk cutting their dividends eventually, which is rarely good for a stock. In a way, this creates a system of checks and balances. You've heard this all from me before.
Ever the stock screener, always on the hunt for companies with attributes that might have the ability to outperform their peers, I've put together a tracking portfolio of mid-cap dividend growers.
Criteria for inclusion include the following:
- $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%
Twenty names made the cut. There are a handful that are recognizable, to me anyway. Lancaster Colony (LANC) , which makes food products (including T Marzetti salad dressing), has been a solid under-the radar performer for many years. Retailer Tractor Supply Company (TSCO) , one of the most intriguing stores I've ever been to, also made the list. I'm not typically a fan of retailers these days, but TSCO seems to be in the black every quarter, unlike more seasonal names.
Tool maker Snap-on (SNA) is the largest name on the list (t is part of Jim Cramer's Action Alerts PLUS charitable trust). Rounding out the more recognizable companies are specialty retailer Williams-Sonoma (WSM) , Texas Roadhouse (TXRH) (the only restaurant that qualified), Robert Half International (RHI) and Manpower Group (MAN) .
Banks, as usual when it comes to dividend-related stock screens, dominate the list with seven slots. They include BOK Financial (BOKF) , Prosperity Bancshares (PB) , Associated Banc Corp (ASB) , MB Financial (MBFI) , Washington Federal (WAFD) , International Bancshares (IBOC) and Old National Bancorp (ONB) .
Rounding out the mid-cap dividend growers are Expeditors International (EXPD) , Bunge (BG) , Gentex (GNTX) , Flir Systems (FLIR) , Reliance Steel & Aluminum (RS) and First American Financial (FAF) , the only insurer.
This portfolio has an average market cap of $5.4 billion and yields just over 2%, with an average dividend payout ratio of just under 35%.
I'll be tracking this "experiment" moving forward, unconcerned with short-term performance, but more interested to see how it does over the longer term.