Mid cap companies offer dividend investors an exciting opportunity. They aren't quite large caps, so they still have room to grow, and they offer some of the possible high rewards of their riskier, smaller cap peers. Today we focused on mid cap companies with profitable track records, fueling their high dividend yields at a sustainable clip. We further focused on companies with strong analyst confidence. You might find the list we came up with rather interesting.
Return on Assets [ROA] illustrates how much a company is generating in earnings from its assets alone. This metric gives investors a picture of how profitable the company is relative to the assets in current possession. As well, it lets investors see how efficient and effective management is at generating earnings from the company's assets. While most management teams can probably make money by throwing money at an issue, very few can make very large profits with little investment.
The Operating Profit Margin is a profitability ratio that measures the effectiveness of the company's operating efficiency. This metric allows investors to see how much profit is left after all variable costs are covered. If the company's margin is increasing over time this means that it's earning more per dollar of sales. Finding trends in the Operating Profit Margin helps investors identify companies that are improving profitability over time and managing the economic landscape better than competitors.
We first looked for mid cap basic materials stocks with a very high yield (more than 5%). We next screened for businesses that analysts rate as "Buy" or "Strong Buy" (mean recommendation < 3). From here, we then looked for companies with strong profitability (ROA > 10%)(1-year operating margin>15%).
Do you think these mid-cap stocks should be priced higher? Use this list as a starting-off point for your own analysis.
1) Alliance Resource Partners LP (NASDAQ:ARLP)
|Industry:||Industrial Metals & Minerals|
Alliance Resource Partners LP has a Dividend Yield of 7.26% and Payout Ratio of 49.02% and Analysts' Rating of 2.00 and Return on Assets of 22.74% and Operating Profit Margin of 21.52%. The short interest was 0.84% as of 06/04/2012. Alliance Resource Partners, L.P. engages in the production and marketing of coal primarily to utilities and industrial users in the United States.
2) Cliffs Natural Resources Inc. (NYSE:CLF)
|Industry:||Steel & Iron|
Cliffs Natural Resources Inc. has a Dividend Yield of 5.43% and Payout Ratio of 8.82% and Analysts' Rating of 2.20 and Return on Assets of 15.09% and Operating Profit Margin of 29.63%. The short interest was 5.95% as of 06/04/2012. Cliffs Natural Resources Inc., a mining and natural resources company, engages in the production of iron ore pellets, fines and lump ore, and metallurgical coal. It operates five iron ore mines located in Michigan and Minnesota; five metallurgical coal mines located in West Virginia and Alabama; and one thermal coal mine located in West Virginia. The company also operates two iron ore mines in eastern Canada that primarily provide iron ore to steel producers in Asia; and two iron ore mining complexes in Western Australia.
3) Linn Energy, LLC (LINE)
|Industry:||Independent Oil & Gas|
Linn Energy, LLC has a Dividend Yield of 8.29% and Payout Ratio of 57.07% and Analysts' Rating of 1.60 and Return on Assets of 11.24% and Operating Profit Margin of 55.74%. The short interest was 1.03% as of 06/04/2012. Linn Energy, LLC, an independent oil and natural gas company, engages in the acquisition and development of oil and gas properties. The company's properties are primarily located in the Mid-Continent, the Permian Basin, Michigan, California, and the Williston Basin in the United States. As of December 31, 2011, it had proved reserves of 3,370 billion cubic feet equivalent of oil and gas, and natural gas liquids, as well as operated 7,759 gross productive wells.
4) Alliance Holdings GP, L.P. (NASDAQ:AHGP)
|Industry:||Nonmetallic Mineral Mining|
Alliance Holdings GP, L.P. has a Dividend Yield of 6.59% and Payout Ratio of 67.36% and Analysts' Rating of 2.00 and Return on Assets of 22.54% and Operating Profit Margin of 21.39%. The short interest was 0.51% as of 06/04/2012. Alliance Holdings GP, L.P., through its subsidiaries, produces and markets coal primarily to utilities and industrial users in the United States. It produces a range of steam coal with varying sulfur and heat contents. The company operates nine underground mining complexes in Illinois, Indiana, Kentucky, Maryland, and West Virginia.
*Company profiles were sourced from Finviz. Financial data was sourced from Finviz and Google Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.