In my previous post, I described the best S&P 500 dividend stocks according to Piotroski principles. In this article I describe the best mid-cap dividend stocks which are included in the S&P MidCap 400 index, according to the same principles.
A Ranking system sorts stocks from best to worst based on a set of weighted factors. Portfolio123 has a powerful ranking system which allows the user to create complex formulas according to many different criteria. They also have highly useful several groups of pre-built ranking systems, I used one of them the "Piotroski" in this article. The ranking system is based on investing principles of Joseph Piotroski, who is a former accounting professor at the University of Chicago, and an active value-based investor.
The "Piotroski" ranking system is quite complex, and it is giving weight of 50% to price-to-book value, and it is taking into account other factors like; growth margin, cash flow, debt, current ratio and return on assets, as shown in the Portfolio123's chart below.
In order to find out how such a ranking formula would have performed during the last 15 years, I ran a back-test, which is available by the Portfolio123's screener. For the back-test, I took all the 7,014 stocks in the Portfolio123's database.
The back-test results are shown in the chart below. For the back-test, I divided the 7,014 companies into fifty groups according to their ranking. The highest ranked group with the ranking score of 98-100, which is shown by the dark blue column in the chart, has given by far the best return, an average annual return of about 24%, while the average annual return of the S&P 500 index during the same period was about 2.5% (the red column at the left part of the chart). Also, the second and the third group (scored: 96-98 and 94-96) have given superior returns. This brings me to the conclusion that the ranking system is useful.
After running the "Piotroski" ranking system on the companies which are included in the S&P MidCap 400 index and pay a dividend with a higher than 1% yield, on November 16, I discovered the twenty best dividend stocks, which are shown in the charts below. In this article, I describe the first three stocks. In my opinion, these stocks can reward an investor a significant capital gain along with a solid dividend. I recommend readers use this list of stocks as a basis for further research. All the data for this article were taken from Yahoo Finance, Portfolio123 and finviz.com.
URS Corporation (NYSE:URS)
URS Corporation provides engineering, construction, and technical services to public agencies and private sector clients worldwide.
Source: company presentation
URS Corporation has a very low trailing P/E of 12.22 and even a lower forward P/E of 11.84. The price-to-sales ratio is very low at 0.33, and the price-to-book value is low at 1.07. The price to free cash flow is very low at 12.11, and the average annual earnings growth estimates for the next five years is quite high at 10%. The forward annual dividend yield is at 1.62%, and the payout ratio is only 19.2%.
URS Corporation has recorded revenue and EPS growth during the last year, the last three years and the last five years, as shown in the charts below.
Source: company presentation
Most of URS Corporation's stock valuation parameters have been better than its industry median, sector median and the S&P 500 index, as shown in the table below.
On November 05, URS Corporation reported its third-quarter financial results. EPS came in at $1.20 in-line with analyst expectations.
Third Quarter 2013 Highlights
- Revenues were $2.7 billion.
- GAAP Net Income was $88.8 million, or $1.20 per share on a diluted basis.
- Cash EPS was $1.42.
- Cash flow from operations was $268.0 million.
- EBITDA was $217.2 million.
- Book of business at the end of the quarter was $23.3 billion, including backlog of $11.6 billion.
- Company to correct excess goodwill impairment charge overstated in fiscal year 2011.
In the report, Martin M. Koffel, Chairman and Chief Executive Officer, stated:
URS continued to benefit from our strategy of diversification across private and public market sectors. Financial results for the quarter were solid despite the effects of the government shutdown, the uncertainty surrounding the federal budget, and sequestration. Our industrial sector performed well as increased manufacturing activity in North America generated higher demand for facilities expansion and operations and maintenance services. Infrastructure revenues also increased, reflecting the continuing recovery of this market. Oil & gas sector revenues declined slightly due to the residual effects of weather-related delays, especially in the Canadian oil and gas fields.
URS Corporation has compelling valuation metrics and good earnings growth prospects, and considering the fact that the stock is trading near book value, URS stock can move higher. Furthermore, the solid dividend represents an income.
Associated Banc-Corp (ASBC)
Associated Banc-Corp, a bank holding company, offers various banking and nonbanking financial services to individuals and businesses primarily in Wisconsin, Illinois, and Minnesota.
Source: company presentation
Associated Banc-Corp has a trailing P/E of 15.46 and a forward P/E of 15.77. The price to book value is low at 0.98, and the price-to-cash ratio is very low at 2.60. The average annual earnings growth estimates for the next five years is at 7.68%. The forward annual dividend yield is at 2.16%, and the payout ratio is only 29.6%.
The ASBC stock price is 1.31% above its 20-day simple moving average, 4.33% above its 50-day simple moving average and 7.91% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.
On October 17, Associated Banc-Corp reported its third-quarter financial results, which beat EPS expectations by $0.01. The company reported earnings per share of $0.27 for the quarter ended September 30, 2013. This compares to $0.26 per common share, for the quarter ended September 30, 2012.
Third Quarter 2013 Highlights
- Average loans were flat from the second quarter
- 1% growth in commercial and industrial, commercial real estate and residential mortgages; principally offset by continued declines in home equity and installment loans
- Strong average deposit growth of 3% from the second quarter and 13% from a year ago to $17.6 billion
- Mortgage banking income declined 82% from the second quarter
- Net interest margin decreased 3 basis points from the prior quarter while net interest income was up slightly
- Noninterest expenses of $164 million declined $6 million or 3% from the second quarter
- Net income to common shareholders of $44 million for the third quarter declined 5% from the second quarter and YTD 2013 net income of $137 million was 7% more than the comparable year ago period
- Credit quality continued to improve with net charge offs, nonaccrual loans, past due loans and potential problem loans all declining quarter over quarter
- During the third quarter, the Company repurchased $30 million, or approximately 1.8 million shares
- On October 4, 2013, the Company executed an additional accelerated share repurchase of 1.8 million shares
- YTD 2013 return on Tier 1 common equity was 9.8%, compared to 9.4% for the prior year period
- Capital ratios remain very strong with a Tier 1 common equity ratio of 11.64%
Associated Banc-Corp has good valuation metrics, and solid earnings growth prospects, and considering the fact that the stock is in an uptrend, and is trading below book value, ASBC stock can move higher. Furthermore, the rich dividend represents a nice income.
Protective Life Corporation (NYSE:PL)
Protective Life Corporation, together with its subsidiaries, provides financial services primarily in the United States.
Protective Life has a very low trailing P/E of 12.59 and a very low forward P/E of 10.10. The price to free cash flow is very low at 5.76, and the price-to-sales ratio is also low at 1.04. The price to book value is low at 0.99, and the average annual earnings growth estimates for the next five years is at 9.77%. The forward annual dividend yield is at 1.67%, and the payout ratio is only 19.10%.
The PL stock price is 3.73% above its 20-day simple moving average, 7.48% above its 50-day simple moving average and 21.47% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.
Protective Life Corporation has recorded EPS, revenue and dividend growth, during the last three years, as shown in the table below.
Most of Protective Life Corporation's stock valuation parameters have been better than its industry median, sector median and the S&P 500 index, as shown in the table below.
On October 30, Protective Life Corporation reported its third-quarter financial results, which beat EPS expectations by $0.01. The company reported that net income available to PLC's common shareowners for the third quarter of 2013 was $93.1 million or $1.15 per average diluted share, compared to $60.5 million or $0.73 per average diluted share in the third quarter of 2012. After-tax operating income was $79.5 million or $0.98 per average diluted share, compared to $63.0 million or $0.76 per average diluted share in the third quarter of 2012. In the report, John D. Johns, Chairman, President and CEO said:
We are very pleased to report another solid quarter. Notwithstanding the headwinds created by the low interest rate environment, an unsettled regulatory environment and intense competition across all retail product lines, we continue to stay on track to meet our sales, capital and earnings plans for the year. We are particularly pleased to have the MONY transaction closed and expect this acquisition to be immediately accretive to our bottom line in the fourth quarter.
Protective Life Corporation has recorded EPS, revenue and dividend growth, and considering its compelling valuation metrics, and the fact that the stock is in an uptrend and is trading below book value, PL stock can move higher. Furthermore, the solid dividend represents an income.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.