The Highest Quality Mid-Cap Dividend Growth Stocks

Mid-cap stocks are stocks of companies with a market capitalization between $2 billion and $10 billion. Historically, large-cap stocks tend to be slow-growing and relatively stable, while small-cap stocks often are fast-growing but volatile. The best mid-cap stocks fall somewhere in between: they are less volatile and have strong growth potential.

This article presents the 30 highest quality mid-cap dividend growth stocks tracked by Dividend Radar, a weekly automatically generated spreadsheet listing stocks with dividend increase streaks of five years or more. I use DVK Quality Snapshots to assess quality, and rank stocks by decreasing quality scores and using tie-breaking metrics.

I present details, quality indicators, key metrics, and fair value estimates of the top 19 stocks, those with quality scores of 19-22 (rated Fine). The remaining 11 stocks each have a quality score of 18, rated Decent. I identify them in rank order by ticker, without additional details.

I happen to own two of these mid-cap stocks and they are ranked #1 and #2, coincidentally.

Personally, I’m not looking particularly to add mid-cap stocks to my DivGro portfolio, but there are several candidates worth due diligence research, nonetheless.

Why Consider Investing in Mid-Cap Stocks?

As mentioned earlier, mid-cap stocks have market caps between $2 billion and $10 billion. They include fast-growing companies that have outgrown small-cap status and more mature companies that operate in stable, profitable corners of the market. Overall, mid-caps are less volatile than small-caps and have more growth potential than large-caps.

Mid-caps have been around longer than small-caps and are not as risky as small-caps. When doing research, you’ll likely find information more readily about mid-caps than about small-caps.

Mid-caps may be on the verge of breaking out, either via merger and acquisition activity or by announcing new product lines. Or they can be targeted by large-cap companies in takeover bids, often with generous offers to existing shareholders. Other mid-caps may have business models that may not allow them to grow larger and become large-cap stocks. So it is important to research mid-cap candidates to understand their outlook, growth prospects, and risk profiles.

It is quite interesting to note that mid-caps have outperformed both their large-cap and small-cap counterparts since 1972. This is fascinating, especially considering that mid-caps are less volatile than small-caps. Here is a chart from a blog article comparing the returns of large-caps, mid-caps, and small-caps over this timeframe:

Source: fourpillarfreedom.com

The same article provides annualized returns per cap category over this timeframe, as well as a measure of volatility:

Source: fourpillarfreedom.com

It is important to note that the outperformance of mid-caps is for this specific timeframe starting in 1972. There have been some stretches where small-caps and even large-caps have outperformed mid-caps.

Quality Assessment and Ranking Stocks

In an article published in June, David Van Knapp (DVK) presented the highest-quality dividend growth stocks. In that article, he describes the scoring system we both use to assess the quality of dividend stocks, called Quality Snapshots. The approach is “to consult widely-used, trusted sources, and use them to create a scoring system that pulls various factors together into an overall quality score.”

While we both use Quality Snapshots, I have different rating and ranking systems.

My rating system maps to different quality score ranges. Ratings are Exceptional (25), Excellent (23-24), Fine (19-22), Decent (15-18), Poor (10-14), and Inferior (0-9). Furthermore, Investment Grade ratings correspond to quality scores in the range 15-25, while Speculative Grade ratings have quality scores below 15 points.

To rank stocks, I sort them by descending quality scores and use the following tie-breaking metrics, in turn:

  1. SSD Dividend Safety Scores
  2. S&P Credit Ratings
  3. Dividend Yield

When two stocks with the same quality score have the same Dividend Safety Score, I next compare their S&P Credit Ratings, ranking the one with the better Credit Rating higher. I rarely need to break ties with Dividend Yield.

Mid-Cap Dividend Growth Stocks Rated Fine

There are 94 mid-cap dividend growth stocks in Dividend Radar with quality scores of 15 or above. I ranked these stocks and present the top 30 in this article. The following table presents the 19 stocks rated Fine, with quality scores of 19-22. (There are no mid-cap dividend growth stocks in Dividend Radar with higher quality scores).

Table created by author with data sourced from Dividend Radar, Value Line, Morningstar, S&P Capital, Simply Safe Dividends, and Google Finance. I own the two top-ranked stocks in my DivGro portfolio. NA* indicates stocks with no S&P Credit Ratings, but low debt levels.

The table presents key metrics of interest to dividend growth investors, along with quality indicators and fair value estimates. These include the years of consecutive dividend increases (Yrs), the dividend Yield for a recent Price, and the 5-year compound annual dividend growth rate (5-Yr DGR).

I also include the Chowder Number (CDN), a popular metric for screening dividend growth stocks for possible investment. The CDN column is color-coded to indicate the likelihood of delivering annualized returns of at least 8%. Green means likely andyellow means less-likely. I consider green CDNs favorable.

The fair value column (Fair Val.) shows my fair value estimates, determined from fair value estimates and price targets from several sources, including Morningstar and Finbox.io. Additionally, I estimate fair value using the 5-year average dividend yield of each stock using data from Simply Safe Dividends.

Company Descriptions

The following company descriptions are the author’s summary of company descriptions sourced from Finviz.

1. Pinnacle West Capital Corporation (PNW) – Utilities

PNW is a holding company that provides retail and wholesale electric services primarily in the state of Arizona. Its subsidiary, Arizona Public Service Company, is a vertically-integrated electric that generates, transmits, and distributes electricity using coal, nuclear, gas, oil, and solar resources. PNW was founded in 1920 and is headquartered in Phoenix, Arizona.

2. Snap-on Incorporated (SNA) – Industrials

SNA manufactures and markets tools, equipment, diagnostics, repair information, and systems solutions. It serves aviation and aerospace, agriculture, construction, government and military, mining, natural resources, power generation, and technical education industries, as well as vehicle dealerships and repair centers. SNA was founded in 1920 and is headquartered in Kenosha, Wisconsin.

3. Tootsie Roll Industries, Inc. (TR) – Consumer Staples

TR, together with its subsidiaries, manufactures and sells confectionery products primarily in the United States, Canada, and Mexico. The company sells its products under various trademarks, including Tootsie Roll, Tootsie Pops, Dots, Junior Mints, and Sugar Babies. TR was founded in 1896 and is based in Chicago, Illinois.

4. Landstar System, Inc. (LSTR) – Industrials

LSTR provides integrated transportation management solutions in the United States, Canada, Mexico, and internationally. It operates through two segments, Transportation Logistics and Insurance. The company markets its services through independent commission sales agents and third-party capacity providers. LSTR was founded in 1968 and is headquartered in Jacksonville, Florida.

5. American States Water Company (AWR) – Utilities

Founded in 1929 and based in San Dimas, California, AWR provides water and electric services to residential and industrial customers in California through a holding company, Golden State Water Company. AWR provides water and wastewater services to military installations in the United States through American States Utility Services, another holding company.

6. Robert Half International Inc. (RHI) – Industrials

Founded in 1948 and headquartered in Menlo Park, California, RHI provides staffing and risk consulting services to customers in about 400 locations worldwide. The company operates through three segments: Temporary and Consultant Staffing, Permanent Placement Staffing, and Risk Consulting and Internal Audit Services. RHI markets its staffing services to clients as well as to employment candidates.

7. Globe Life Inc. (GL) – Financials

GL, through its subsidiaries, provides various life and supplemental health insurance products, as well as annuities, to lower-middle and middle-income households in the United States. The company operates through four segments: Life Insurance, Supplemental Health Insurance, Annuities, and Investments. GL was incorporated in 1979 and is based in McKinney, Texas.

8. Amdocs Limited (DOX) – Information Technology

Founded in 1988 and headquartered in Chesterfield, Missouri, DOX provides software and services to communications, pay-TV, entertainment, and media industry service providers. The company also provides advisory services, mobile financial services,, and advertising and media services. DOX was founded in 1988 and is headquartered in Chesterfield, Missouri.

9. Commerce Bancshares, Inc. (CBSH) – Financials

Founded in 1865 and headquartered in Kansas City, Missouri, CBSH is a bank holding company of Commerce Bank. The bank provides a range of retail, mortgage banking, corporate, investment, trust, and asset management products and services to individuals and businesses. CBSH operates through three segments: Consumer, Commercial, and Wealth.

10. Carlisle Companies Incorporated (CSL) – Industrials

Founded in 1917 and headquartered in Charlotte, North Carolina, CSL operates as a diversified manufacturing company in the United States and internationally. The company designs, manufactures, and markets a range of products for various niche markets, including commercial roofing, energy, agriculture, mining, construction, aerospace and defense electronics, medical technology, transportation, and healthcare.

11. SEI Investments Company (SEIC) – Financials

Founded in 1968 and based in Oaks, Pennsylvania, SEIC provides wealth management, retirement and investment solutions, asset management, financial services, and investment advisory services to its clients. SEIC enables corporations, financial institutions, financial advisors, and ultra-high-net-worth families to create and manage wealth by providing investment and investment-business solutions.

12. Dolby Laboratories, Inc. (DLB) – Information Technology

Founded in 1965 and headquartered in San Francisco, California, DLB develops and licenses audio and imaging technologies to film studios, content creators, post-production facilities, cinema operators, broadcasters, and video game designers. The company sells its products directly and through distributors worldwide. DLB was founded in 1965 and is headquartered in San Francisco, California.

13. Lancaster Colony Corporation (LANC) – Consumer Staples

Founded in 1961 and based in Columbus, Ohio, LANC manufactures and markets specialty food products for the retail and foodservice markets in the United States. LANC’s products include salad dressings and sauces; fruit glazes, vegetable and fruit dips; Greek yogurt vegetable dips and hummus; and a variety of frozen bread and dry snacks.

14. ITT Inc. (ITT) – Industrials

ITT manufactures and sells engineered critical components and customized technology solutions for the energy, transportation, and industrial markets. The company operates in three segments: Industrial Process, Motion Technologies, and Connect & Control Technologies. ITT was founded in 1920 and is headquartered in White Plains, New York.

15. Everest Re Group, Ltd. (RE) – Financials

Through its subsidiaries, RE provides reinsurance and insurance products in the United States, Canada, Singapore, Brazil, the United Kingdom, and in European markets. The company operates through the U.S. Reinsurance, International, Bermuda, and Insurance segments. RE was founded in 1973 and is headquartered in Hamilton, Bermuda.

16. IDACORP, Inc. (IDA) – Utilities

Founded in 1915 and headquartered in Boise, Idaho, IDA is a holding company engaged in the generation, transmission, distribution, purchase, and sale of electric energy in the United States. The company operates 17 hydroelectric generating plants in southern Idaho and eastern Oregon, and 3 natural gas-fired plants in southern Idaho.

17. The Toro Company (TTC) – Industrials

TTC manufactures and markets turf maintenance equipment and services, turf irrigation systems, landscaping equipment and lighting products, snow and ice management products, agricultural micro-irrigation systems, and residential yard and snow thrower products worldwide. It operates in two segments, Professional and Residential. TTC was founded in 1914 and is headquartered in Bloomington, Minnesota.

18. Hubbell Incorporated (HUBB) – Industrials

HUBB designs, manufactures, and sells electrical and electronic products for non-residential and residential construction, as well as industrial and utility applications. The company’s products include cable reels, wiring devices and accessories, junction boxes, plugs and receptacles, cable glands and fittings, switches and dimmers. HUBB was founded in 1888 and is based in Shelton, Connecticut.

19. J & J Snack Foods Corp. (JJSF) – Consumer Staples

JJSF manufactures, markets, and distributes various nutritional snack foods and beverages to foodservice and retail supermarkets in the United States, Mexico, and Canada. The company sells its products through a network of food brokers and independent sales distributors; and a direct sales force. JJSF was founded in 1971 and is based in Pennsauken, New Jersey.

Commentary

I own only two of the mid-cap stocks presented here, PNW and SNA, which are ranked #1 and #2, respectively. Both positions essentially are full positions in my portfolio (arbitrarily, about 1% of the total value of my portfolio). Both stocks are discounted relative to my fair value estimates and both have favorable CDNs. PNW has an attractive 4.01% yield, while SNA’s 5-year DGR is quite impressive at 15.6%.

In fact, PNW has the highest yield of these stocks (4.01%), followed by IDA (3.05%) and SNA (2.81%). As for 5-yr DGR, DLB has the highest (23.2%), followed by LSTR (21.5%) and SNA (15.6%). The stocks with the highest discounts are CSL (15%), SEIC (14%), and PNW, GL, and RE (all 13%).

TR, AWR, CBSH, and LANC are Dividend Kings with dividend increase streaks of at least 50 years! Those stocks, along with CSL and SEIC also are Dividend Champions (dividend streaks of at least 25 years).

Looking at the mid-caps I don’t own, DOX and CSL catch my eye. Both have favorable CDNs and are discounted at least 10% to my fair value estimates.

Below are F.A.S.T.Graphs charts of DOX and CSL, showing a general uptrend in earnings and dividends over the past 10 years and attractive prospects. DOX shows more consistency, but CSL has a higher adjusted operating growth rate.

Source: F.A.S.T.Graphs

DOX’s price line (black) is below the primary valuation line (orange) and at the stock’s normal P/E ratio (blue). The stock appears to be trading at a discount to fair value. An investment in DOX in September 2010 would have returned 9.2% on an annualized basis (with dividends included), compared with total returns of 12.8% by the S&P 500.

CSL’s price line is above the primary valuation line and at the stock’s normal P/E ratio. The stock appears to be trading at about fair value, according to F.A.S.T.Graphs. An investment in CSL in January 2010 would have returned 14% on an annualized basis (with dividends included), compared with total returns of 12.2% by the S&P 500.

Here are two charts, courtesy of Portfolio Insight, showing the current dividend yield plotted relative to the trailing 5-year average yield:

Source: Portfolio Insight

Source: Portfolio Insight

For both DOX and CSL, it appears to be a good time to consider buying shares. DOX is about 39% above its 5-year average yield, while CSL is about 17% above its average yield.

Bonus Section

Below is a table presenting the tickers of mid-cap stocks with quality scores of 18 (rated Decent). These tickers are in rank order and are provided for information only, without additional details.

Rank

20

21

22

23

24

25

26

27

28

29

30

Ticker

UMBF

SWX

EMN

MGEE

RLI

POWI

BKH

ALE

NEU

CFR

ERIE

Concluding Remarks

This article presented the 30 highest quality mid-cap dividend growth stocks in Dividend Radar, based on DVK Quality Snapshots and my ranking system. I happen to own the two top-ranked mid-caps, but none of the others on the list.

One reason to consider mid-cap stocks is the strong growth potential that many of these stocks have, often with less volatility than small-cap stocks.

I’m not really looking to add mid-cap stocks to my DivGro portfolio, but there are several candidates worth due diligence research, nonetheless. I highlighted two, DOX and CSL, and the stocks I already own, PNW and SNA, are worth considering, too.

As always, I encourage readers to do their own due diligence before investing.

Thanks for reading and happy investing!

Disclosure: I am/we are long PNW, SNA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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