Rolling Out the 2018 Mid Cap Dividend Growers Portfolio

 | May 16, 2018 | 11:52 AM EDT
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sna

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man

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wsbc

Today I roll out the 2018 Mid Cap Dividend Growers Portfolio, following fairly decent performance by last year's vintage. The idea was to assemble a group of names in an area of the market that I don't pay a lot of attention to (mid-caps) using an investment concept (dividend growth) that I've been enamored with and have written about for years.

Keep in mind that this concept is not about generating a high yield per se, but rather growing dividend payouts to shareholders, and having the capability of continuing to do so in the future. Shareholders can decide what to do with those dividends, either reinvest them in additional shares, or receive in cash, which is one reason many investors like dividends; as the old saying goes "a bird in the hand is worth two in the bush." Companies that can increase their dividends display a level of confidence, and it comes with some built-in checks and balances. To knowingly raise dividends to the point that they may not be sustainable is foolish; stocks are often battered in cases where dividends are reduced or eliminated.

The criteria for inclusion include in the portfolio are as follows:

  • $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%

Somewhat surprisingly, 24 names made the cut this year, versus 20 last year. Not surprisingly, there are several holdovers from last year, including the following:

  • Snap-on Inc (SNA)
  • Robert Half Intl (RHI)
  • Reliance Steel & Aluminum (RS)
  • ManpowerGroup (MAN)
  • First American Financial Corp (FAF)
  • Prosperity Bancshares (PB)
  • Texas Roadhouse (TXRH)
  • MB Financial Inc (MBFI)
  • International Bancshares Corp (IBOC)
  • Washington Federal (WAFD)

While banks and financials again dominate this year with a total of 14 names, including 10 regional banks, it is nice to see a second restaurant name, Cheesecake Factory (CAKE) . In addition, I did not recognize starch and sweetener name Ingredion (INGR) at first, but it is the former Corn Products International.

The other newcomers include:

  • Unum Group (UNM)
  • MSC Industrial Direct (MSM)
  • Evercore Inc (EVR)
  • Assurant (AIZ)
  • ILG Inc (ILG)
  • Cathay General Bancorp (CATY)
  • First Midwest Bancorp (FMBI)
  • Hope Bancorp (HOPE)
  • Convergys Corp (CVG)
  • First Merchants Corp (FRME)
  • WesBanco (WSBC)
  • Independent Bank Corp (INDB)

This portfolio has an average market cap of $4.5 billion, yield of 2.15%, with an average dividend payout ratio of about 34.5%.

I will continue to give periodic updates on performance, and we'll see if the concept has legs in year two.

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