Many investors focus on the biggest stocks in the market -- called large-caps -- for their stability and predictability. This makes large-cap stocks generally appealing to income investors. On the other side, some investors focus on small-caps because they tend to offer stronger growth potential.
Between them is a group that is often overlooked -- the mid-caps. These are generally stocks with market caps of $2 billion to $10 billion. There are some strong dividend stocks in the mid-cap category that are worthy of consideration for income investors.
Your Own 'Money Transfer' Service
The Western Union Company (WU) is the world leader in the business of domestic and international money transfers. The company has a network of approximately 550,000 agents globally and operates in more than 200 countries. About 90% of agents are outside of the U.S.
The company operates three business segments, Consumer-to-Consumer (C2C), Business Solutions, and Other (bill payments in the U.S. and Argentina). Approximately 87% of revenue is now from C2C, 8% from Business Solutions and 5% from Other. Western Union divested the Speedpay (U.S. bill payments) and Paymap (mortgage payments) businesses in 2019. The company had ~$4.5B in revenue in fiscal 2022.
The past fiscal year was difficult for the company. Western Union reported that for Q4 2022, companywide revenue fell 15% and diluted GAAP earnings per share increased 55% to $0.65 compared to $0.42 in the prior year. Revenue declined because of lower volumes in North America, Europe, Asia, Middle East, and Africa offset by Latin and Central America. The conflict in Ukraine is affecting business and Western Union closed its operations in Russia and Belarus.
Western Union set adjusted EPS guidance at $1.55-$1.65 and expects revenue to decline (-2%) to (-4%) in 2023. Western Union's traditional C2C business is highly profitable but it is a mature business. The top line has exhibited some volatility in the past 10 years, leading to volatility in the bottom line due to acquisitions and divestures. EPS growth has benefited from significant share buybacks.
With a dividend payout ratio of ~60% for fiscal 2023, the dividend is sustainable with the current earnings power of the business. The shares currently yield 7.7%.
A Healthy Dividend Yield
Medifast (MED) is an American weight loss and nutrition company. Founded in 1980, Medifast is the company behind the health and wellness community OPTAVIA. Its business model is based on direct selling, where nearly 60,000 independent coaches offer exclusive OPTAVIA-branded nutritional products to their clients.
In the most recent quarter, revenue decreased 16.4% to $349.0 million. The company has attributed its decline to lower coach productivity, where on average, a coach earned $5,945 in the quarter compared with $6,536 in the same quarter last year. In addition, OPTAVIA coaches have decreased to 58,700 compared with Q1 2022. Still, net income was $40 million or $3.67 per share.
Medifast has had strong growth over the past several years. The company's EPS have grown at a CAGR of 35.6% over the last nine years. Growth was driven by the number of independent coaches within the business. The company's EPS guidance for Q2 2023 is between $1.32 and $1.44. In addition, the company has had a solid dividend policy since 2015 and has increased its dividend by 34% on average over the last five years.
Earnings growth is driven significantly by share repurchases. As the company has substantial liquidity, Medifast has been focused on share buybacks to increase shareholder value. The company has again reiterated its commitment to repurchase shares over the next few years.
The stock has a high current dividend yield of 7.5%.
An Income Spin Cycle
Whirlpool Corp. (WHR) is a leading home appliance company with well-known brands like Whirlpool, Kitchen Aid, and Maytag. Roughly half of the company's sales are in North America, but Whirlpool does business around the world under 13 principal brand names. The company generated nearly $20 billion in sales in 2022.
In April, Whirlpool reported first-quarter 2023 results. For the quarter, sales came in at $4.6 billion, which was down 5.5% compared to first quarter 2022. Ongoing earnings per diluted share was $2.66 in the quarter, 50% below last year's $5.31 per share. Whirlpool reaffirmed its 2023 guidance, which sees ongoing EPS coming in at $16.00 to $18.00 on revenue of $19.4 billion, representing a 1% to 2% decline from the prior year. Additionally, Whirlpool expects cash provided by operating activities to total roughly $1.4 billion, with $800 million in free cash flow.
From 2012 through 2022, Whirlpool grew EPS by an average compound rate of approximately 8% per year. However, during this time total company-wide sales only grew by an average rate of 0.9% per year. The difference between top-line growth and bottom line per share results can be explained by an improving margin and a reduced share count.
Whirlpool generated cyclical peak earnings of $26.59 in 2021 during the coronavirus pandemic, which has established difficult comparisons for the company. Over the long-term Whirlpool continues to have opportunities in the way of the potential for margin improvement and a strong share repurchase program over time. We see the impressive earnings result in 2021 as a cyclical peak, and from a more normalized 2023 forecast of $16.50 per share, we expect 2.0% annual EPS growth over the next five years.
Whirlpool has strong brands, and its competitive advantages include its global presence and a strong control over its costs, which is why the company generates significantly higher margins than its peers. With a 2023 expected dividend payout ratio of approximately 40%, the dividend appears sustainable.
The stock has a 5.2% current dividend yield.
