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, Portfolio123 (1,214 clicks)
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Many mid-cap companies pay dividends. As a matter of fact, 258 companies among the 400 companies that are included in the S&P MidCap 400 index pay dividends, 126 of them have a dividend yield greater than 2% and 69 companies have a yield of over 3%.

I have searched for profitable companies that are included in the S&P MidCap 400 index that pay rich dividends, and that have raised their payouts at a very high rate over the last five years.

S&P MidCap 400 index

Description from Standard & Poor's:

The S&P MidCap 400® provides investors with a benchmark for mid-sized companies. The index covers over 7% of the U.S. equity market, and seeks to remain an accurate measure of mid-sized companies, reflecting the risk and return characteristics of the broader mid-cap universe on an on-going basis.

The screen's formula requires all stocks to comply with all following demands:

  1. Dividend yield is greater than 3.0%.
  2. The payout ratio is less than 100%.
  3. The annual rate of dividend growth over the past five years is greater than 7%.
  4. Forward P/E is less than 16.
  5. Average annual earnings growth estimates for the next 5 years is greater or equal 5%.
  6. The 10 stocks with the highest dividend growth over the past five years among all the stocks that complied with the first five demands.

I used the Portfolio123's powerful screener to perform the search and to run back-tests. Nonetheless, the screening method should only serve as a basis for further research. All the data for this article were taken from Portfolio123.

After running this screen on April 23, 2013, before the market open, I discovered the following 10 stocks: NV Energy Inc (NVE), Guess? Inc. (GES), Scotts Miracle-Gro Company (SMG), Meredith Corp (MDP), Steel Dynamics Inc (STLD), Owens & Minor Inc. (OMI), Greif Inc. (GEF), Tupperware Brands Corp (TUP), Commercial Metals Co (CMC) and Alliant Energy Corp (LNT).

The table below presents the ten companies, their last price, their market cap and their industry.

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The table below presents the dividend yield, the average annual dividend rate of growth over the past five years, the payout ratio, the Trailing P/E, the PEG ratio and the total debt-to-equity ratio for the 10 companies.

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The table below presents the trailing P/E, the forward P/E, the price-to-sales ratio, the price to book value, the long-term average annual earnings growth estimates and the past five years' average annual earnings growth for the 10 companies.

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Back-testing

In order to find out how such a screening formula would have performed during the last year, last five years and last 14 years, I ran the back-tests, which are available by the Portfolio123's screener.

The back-test takes into account running the screen every four weeks and replacing the stocks that no longer comply with the screening requirement with other stocks that comply with the requirement. The theoretical return is calculated in comparison to the benchmark (S&P 500), considering 0.25% slippage for each trade and 1.5% annual carry cost (broker cost). The back-tests' results are shown in the charts and the tables below.

One-year back-test

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Five-year back-test

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14-year back-test

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Summary

The mid-cap good-yielding stocks screen has given much better returns during the last year, the last five years and the last 14 years than the S&P 500 benchmark. The Sharpe ratio, which measures the ratio of reward to risk, was also much better in all the three tests. The 14-year average annual return of the screen was at 12.58%, while the average annual return of the S&P 500 index during the same period was only 1.69%. Although the past guarantees nothing, it does provide insight into how this screen has performed under various economic conditions over varying time frames.

Source: 10 Mid-Cap Good-Yielding Stocks That Have Raised Payouts By At Least 7% A Year For The Last 5 Years