Dividends add a tremendous amount of confidence when looking for value stocks. A dividend helps reaffirm that the company is indeed flowing cash positively. A value investor can then have greater confidence waiting for the undervaluation to correct. Dividend payments also re-compensates the investor for his patience.
Mid cap dividend stocks seldom become undervalued - so finding some is a rare event.
This screen looks for mid cap stocks between $2 Billion and $5 Billion in market capitalization paying dividends. We require other filters to ensure attractive valuation and growing sales and earnings. Some of the other parameters include:
- Dividend Yield > 2%
- Dividend 5 Year Avg > 1%
- EPS 5 Year Avg Growth > 8%
- Payout Ratio < 60%
- Price/Book < 1.2
- Price/Sales < 2
- Sales 5 Year Avg Growth > 3%
In this run of the screen, we only found 1 stock that satisfied this modest criteria. A sign that the markets are overvalued, perhaps!
The Screen Results
Notes and Observations
- AVX: AVX makes and supplies electronic components, such as capacitors, sensors, actuators and connectors to OEMs, distributors and electronic manufacturing service provides. The company is majority owned by Kyocera. The business looks to be undervalued by most measures and worth a further review. The dividend has seen modest growth in the recent years and can be easily sustained.
The one stock in this screen looks very promising. The current economic climate is ripe for a stock market decline but these stocks should handle any downturn well as they are priced for distress but have strong financials and a sustainable dividend to tide the investor over until the cycle returns up.