Seeking Alpha
, Portfolio123 (2,142 clicks)
Long only, value, research analyst, dividend investing
Profile| Send Message|
( followers)  

Mid-cap stocks have done quite well this year. The return of the S&P MidCap 400 index year-to-date is at 25.94%, while one year return of the index is at 27.16 %, these compared to 12.65% the average annual return for the last three years and an average annual return of 20.42% for the last five years.

In my previous post, I described the best S&P 500 dividend stocks according to Lynch 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 "All-Stars: Lynch" in this article. The ranking system is based on investing principles of the well-known investor Peter Lynch.

The "All-Stars: Lynch" ranking system is quite complex, and it is taking into account many factors like; trailing P/E, relative P/E, PEG ratio, institutional ownership, liabilities, sales growth and EPS growth, 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 chart clearly shows that the average annual return has a very significant positive correlation to the "All-Stars: Lynch" rank. This brings me to the conclusion that the ranking system is useful.

(click to enlarge)

After running the "All-Stars: Lynch" 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 December 13, before the market open, I discovered the twenty best dividend stocks, which are shown in the chart below. In this article, I describe the six best stocks according to this ranking system. 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.

(click to enlarge)

HollyFrontier Corp (NYSE:HFC)

HollyFrontier Corporation operates as an independent petroleum refiner and marketer in the United States.

(click to enlarge)

(click to enlarge)

Source: company presentation

HollyFrontier has a very low debt (total debt to equity is only 0.16), and it has a very low trailing P/E of 8.77 and a very low forward P/E of 10.98. The current ratio is at 2.30, and the price-to-sales ratio is very low at 0.45. The forward annual dividend yield is at 4.36%, and the payout ratio is at 29.5%.

The HFC stock price is 3.32% above its 50-day simple moving average and 2.41% above its 200-day simple moving average. That indicates a mid-term and a long-term uptrend.

HollyFrontier has recorded strong revenue, cash flow, EPS and dividend growth during the last three years and the last five years, as shown in the charts below.

(click to enlarge)

Source: company presentation

Most of HollyFrontier's stock valuation and return on capital parameters have been better than its industry median, sector median and the S&P 500 median, as shown in the tables below.

(click to enlarge)

(click to enlarge)

Source: Portfolio123

The chart below emphasizes the continuous cash returned by the company to its shareholders.

(click to enlarge)

Source: company presentation

On November 06, HollyFrontier reported its third-quarter financial results. The company reported third quarter net income attributable to HollyFrontier stockholders of $82.3 million or $0.41 per diluted share for the quarter ended September 30, 2013, compared to $600.4 million or $2.94 per diluted share for the quarter ended September 30, 2012.

In the report, HollyFrontier's President & CEO, Mike Jennings, commented:

Contraction in the Brent to WTI differential continued to squeeze inland refined product margins from prior year highs, resulting in a year-over-year decrease in third quarter earnings. In addition, higher crude oil prices and elevated RIN costs negatively affected our capture of benchmark refining margins during the third quarter. Looking forward, we see continued growth in North American crude oil production and are confident that our geographic proximity and ability to process both light and heavy crude streams will create attractive opportunities, even as transportation logistics and related crude differentials are rationalized.

HollyFrontier has recorded strong revenue, EPS and dividend growth, and considering its compelling valuation metrics, and the fact that the stock is in an uptrend, HFC stock can move higher. Furthermore, the rich dividend represents a nice income.

Risks to the expected capital gain and to the dividend payment include; a downturn in the U.S. economy and lower refining margins.

HFC Dividend Chart

(click to enlarge)

Chart: finviz.com

ResMed Inc. (NYSE:RMD)

ResMed Inc., through its subsidiaries, engages in the development, manufacture, and distribution of medical equipment for treating, diagnosing, and managing sleep-disordered breathing and other respiratory disorders.

ResMed has a very low debt (total debt to equity is only 0.21), and it has a trailing P/E of 20.90 and a forward P/E of 15.98. The PEG is at 1.35, and the average annual earnings growth estimates for the next five years is quite high at 15.45%. The forward annual dividend yield is at 2.20%, and the payout ratio is only 35%.

ResMed has recorded strong revenue and EPS growth during the last year, the last three years and the last five years, as shown in the table below.

Most of ResMed's stock valuation, margins, growth rates and return on capital parameters have been better than its industry median, sector median and the S&P 500 median, as shown in the tables below.

(click to enlarge)

(click to enlarge)

(click to enlarge)

(click to enlarge)

On October 24, ResMed reported its latest quarter financial results. The company reported record results for the quarter ended September 30, 2013. Revenue for the quarter ended September 30, 2013 was $357.7 million, a 5% increase (a 4% increase on a constant currency basis) over the quarter ended September 30, 2012. For the quarter ended September 30, 2013, net income was $80.9 million, an increase of 14% compared to the quarter ended September 30, 2012. Diluted earnings per share for the quarter ended September 30, 2013 were $0.56, a 14% increase compared to the quarter ended September 30, 2012.

ResMed has recorded strong revenue and EPS growth, and considering its strong earnings growth prospects, RMD stock can move higher. Furthermore, the rich dividend represents a nice income.

RMD Dividend Chart

(click to enlarge)

Chart: finviz.com

Oceaneering International, Inc. (NYSE:OII)

Oceaneering International, Inc., together with its subsidiaries, provides engineered services and products primarily to the offshore oil and gas industry with a focus on deepwater applications worldwide.

(click to enlarge)

Source: company presentation

Oceaneering has a very low debt (total debt to equity is only 0.02), and it has a trailing P/E of 23.24 and a forward P/E of 18.86. The PEG is low at 1.05, and the average annual earnings growth estimates for the next five years is very high at 22.20%. The forward annual dividend yield is at 1.15%, and the payout ratio is only 24.1%.

Oceaneering has recorded strong revenue and EPS growth during the last year, the last three years and the last five years, as shown in the charts below.

(click to enlarge)

Source: company presentation

On October 28, Oceaneering reported its third-quarter financial results, which beat EPS expectations by $0.02 and was in-line on revenues. The company reported record earnings for the third quarter ended September 30, 2013. On revenue of $853 million, Oceaneering generated net income of $104.4 million, or $0.96 per share. For the third quarter of 2012, Oceaneering reported revenue of $734 million and net income of $84.4 million, or $0.78 per share. For the second quarter of 2013, Oceaneering reported revenue of $820 million and net income of $98.8 million, or $0.91 per share.

In the report, M. Kevin McEvoy, President and Chief Executive Officer, stated:

We achieved record EPS for the quarter, demonstrating the high level of demand we are experiencing for our subsea services and products. Our results were highlighted by all-time high operating income from our ROV business and better than anticipated Subsea Products operating margin. Overall, we remain on track to achieve record EPS for 2013, which we now believe will be up more than 25% over 2012. Given our third quarter results and an improved fourth quarter outlook for Subsea Products and Subsea Projects, our new annual guidance range is $3.35 to $3.40, up from $3.20 to $3.35. For the fourth quarter of 2013, we are projecting EPS of $0.80 to $0.85.

Oceaneering has recorded strong revenue and EPS growth, and considering its strong earnings growth prospects, OII stock can move higher. Furthermore, the solid dividend represents a nice income.

Risks to the expected capital gain and to the very rich dividend payment include; a downturn in the U.S. economy, and a decline in the price of oil and natural gas.

OII Dividend Chart

(click to enlarge)

Chart: finviz.com

Steris Corp. (NYSE:STE)

STERIS Corporation develops, manufactures, and markets infection prevention, contamination control, microbial reduction, and procedural support products and services for healthcare, pharmaceutical, scientific, research, industrial, and governmental customers worldwide.

(click to enlarge)

(click to enlarge)

Source: Investor Presentation September 2013

Steris has a trailing P/E of 17.62 and a forward P/E of 16.10. The current ratio is very high at 3.20, and the average annual earnings growth estimates for the next five years is quite high at 11.50%. The forward annual dividend yield is at 1.86%, and the payout ratio is only 30.2%. The annual rate of dividend growth over the past three years was high at 17.46%%, and over the past five years was also high at 24.37%.

Steris recorded revenue, EPS and dividend growth during the last year, the last three years and the last five years, as shown in the charts below.

(click to enlarge)

Source: Investor Presentation September 2013

Most of Steris' stock valuation and return on capital parameters have been better than its industry median, sector median and the S&P 500 median, as shown in the tables below.

(click to enlarge)

(click to enlarge)

On October 30, Steris reported its second-quarter fiscal 2014 financial results, which beat EPS expectations by $0.01. The company reported that fiscal 2014 second quarter revenue increased 8% to $383.8 million compared with $356.3 million in the second quarter of fiscal 2013. As reported, net income was $29.7 million, or $0.50 per diluted share, compared with net income of $40.1 million, or $0.68 per diluted share in the second quarter of fiscal 2013.

Steris has recorded revenue, EPS and dividend growth, and considering its strong earnings growth prospects, STE stock can move higher. Furthermore, the solid dividend represents a nice income.

STE Dividend Chart(click to enlarge)

Chart: finviz.com

Crane Co. (NYSE:CR)

Crane Co. manufactures and sells engineered industrial products in the United States and internationally.

Crane Co. has a low debt (total debt to equity is only 0.29), and it has a trailing P/E of 17.61 and a low forward P/E of 14.34. The average annual earnings growth estimates for the next five years is at 8.50%. The forward annual dividend yield is at 1.85%, and the payout ratio is only 30.5%. The annual rate of dividend growth over the past three years was high at 11.14%%, and over the past five years was also high at 9.02%.

The CR stock price is 2.63% above its 20-day simple moving average, 4.26% above its 50-day simple moving average and 9.94% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

Crane Co. has recorded revenue, EPS and dividend growth, during the last three years, as shown in the table below.

On October 28, Crane Co. reported its third-quarter financial results. The company reported third quarter 2013 earnings of $0.97 per diluted share, compared to $0.99 in the third quarter of 2012. Third quarter 2013 results included transaction-related costs of $4.1 million, or $0.07 per share, related to the pending acquisition of MEI Conlux Holdings. Third quarter 2012 results included a $0.02 per share gain associated with divestitures, offset by $0.02 per share of repositioning charges. Excluding Special Items in both years, third quarter 2013 earnings per diluted share increased 5% to $1.04, compared to $0.99 in the third quarter of 2012.

Crane Co. has recorded revenue, EPS and dividend growth, and considering its good earnings growth prospects, and the fact that the stock is in an uptrend, CR stock can move higher. Furthermore, the solid growing dividend represents a very nice income.

CR Dividend Chart

(click to enlarge)

Chart: finviz.com

Tupperware Brands Corporation (NYSE:TUP)

Tupperware Brands Corporation operates as a direct seller of various products across a range of brands and categories through an independent sales force worldwide.

Tupperware Brands has a trailing P/E of 19.40 and a forward P/E of 15.25. The PEG ratio is at 1.62, and the average annual earnings growth estimates for the next five years is quite high at 12%. The forward annual dividend yield is at 2.66%, and the payout ratio is only 22.3%. The annual rate of dividend growth over the past three years was very high at 30.41% and over the past five years was also very high at 20.23%.

The TUP stock price is 2.09% above its 20-day simple moving average, 3.81% above its 50-day simple moving average and 12.27% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

Tupperware Brands has recorded strong revenue, EPS and dividend growth, during the last year, the last three years and the last five years, as shown in the table below.

On October 23, Tupperware Brands Corporation reported its third-quarter financial results.

Third-Quarter 2013 Highlights

  • Third quarter 2013 net sales were $603 million. Emerging markets, accounting for 69% of sales, achieved a 13% increase in local currency, driven by large populations, penetration of un-served and underserved consumers and emerging middle classes. Established markets were down 8% in local currency.
  • GAAP net income of $49.9 million versus $47.5 million in the prior year was up 5% in dollars and 17% in local currency. Adjusted diluted E.P.S. of $1.00 included 9 cents of negative impact versus 2012 from changes in foreign exchange rates, which was 4 cents worse than assumed in July's guidance.
  • September year-to-date cash flow from operating activities net of investing activities was $92 million, $21 million ahead of the same period last year.
  • In the third quarter, the Company returned $132 million to shareholders through a dividend payout of $32 million and the repurchase of 1.21 million shares for $100 million. Since 2007, 19 million shares have been repurchased for $1.1 billion, with $872 million left under an authorization that runs until February 2017.
  • Total sales force was even with the prior year at the end of the quarter. Compared with the 3 percent advantage at the end of the second quarter, the decrease came primarily in 3 emerging markets that have large sales force levels but low order sizes: India, Tupperware South Africa and Fuller Mexico; and at BeautiControl.

Although the TUP stock is not cheap by valuation metrics, its historical strong revenue, EPS and dividend growth, and its strong earnings growth prospects suggest a good possibility for the stock to move higher.

Risks to the expected capital gain and to the high dividend payment include; a downturn in the U.S. economy, and the company's debt of $912 million.

TUP Dividend Chart

(click to enlarge)

Chart: finviz.com

Source: Best Mid-Cap Dividend Stocks According To Lynch Principles