Introduction
Dividends add a tremendous amount of confidence when looking for value companies. Mid Cap Stocks are companies that are scaling up to be a mature business and many such companies begin to reward the shareholders with regular dividend. As the growth continues, well run mid cap companies grow their dividends over time, adding to the compounding effect in the investor's portfolio. Great stocks invested at this phase and held on for long term can generate significant wealth for the investors.
Screen Details
This screen looks for mid cap stocks between $2 Billion and $5 Billion in market capitalization paying dividends. We want the dividend to be growing, looking back atleast 5 years, and the business fundamentals also improving so the company is likely to sustain dividend growth in the future. Screen criteria is as follows:
- Dividend Yield > 1.5% and < 3.75%
- Dividend 1 Year Change > 8%
- Dividend 3 Year Avg Growth > 8%
- Dividend 5 Year Avg Growth > 8%
- EPS 5 Year Avg Growth > 8%
- Payout Ratio < 40% and > 10%
- Sales 5 Year Avg Growth > 4%
The Screen Results
Stock | Company | Dividend Yield | div 5Yr Avg Growth | eps 5yr avg growth | Payout Ratio |
|---|---|---|---|---|---|
IBTX | Independent Bank Group | 1.7% | 32.0% | 16.6% | 21.9% |
MDC | M.D.C Holdings | 2.7% | 14.4% | 42.8% | 21.2% |
WTFC | Wintrust Financial | 1.6% | 20.9% | 8.8% | 23.7% |
- IBTX: Appears to be fair to slight undervalued with improving sales, profits and margins. However, the valuation is not compelling enough to risk holding a financial stock at this time.
- MDC: I am very positive on the real estate market today and in the near future. There is definitely pent up demand for new homes and the supply is very tight. At some point it will bubble over, so it is imperative to keep an eye on the valuation. Will continue to investigate further..
- WTFC: Valuations are a bit rich.
Ending Note
Here we are coming at the valuation after we have screened for dividend growth. In practice, this may not give us the best value stocks, but it will certainly give us stocks that can create value from compounding dividends for long time (assuming the management continues their track record of growing dividends). I have pointed out a macro trend that favors residential home manufacturers. There are a few other trends worth keeping an eye on. Online grocery shopping has been all the rage during the pandemic. As the economy settles back into the rhythm of new normal, we will have winners and losers - however the overall trend will continue. Travel will come back and commercial real estate may not recover for a few years.
I have spent the last few weeks with screens and there are enough stocks to dig deeper now for our portfolios.