Dividend Growing Small- And Mid-Cap Companies Watchlist

Jun. 13, 2021 11:41 AM ETATRI, CCBG, EIG, FXNC, HWBK, MCBC, SMMF, FNCB, HII, MRTN2 Comments
Bjorn Zonneveld profile picture
Bjorn Zonneveld


  • Small- and mid-cap stocks tend to outperform large-cap peers due to their small size.
  • In this article, I will look for the most undervalued small- and mid-cap stocks from the CCC list.
  • I highlight my favorites: FNCB, MRTN, and HII.

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Klaus Vedfelt/DigitalVision via Getty Images

I see more and more lists on Seeking Alpha targeting the large-cap dividend growth names. These tend to be safer options than small- and mid-cap dividend growth stocks. However, small- and mid-cap stocks tend to outperform large caps. This is due to the fact that they are smaller in size and small increases have a greater impact. For example, the Wisdomtree MidCap Dividend ETF (NYSEARCA:DON) has outperformed the S&P500 since its inception.

SPY vs DONSource: Dividend Channel

In today's article, I will present some of the most undervalued stocks from the CCC list with a market cap of less than $10 billion. I will look for stocks that are safe but did grow dividends with a high CAGR in the past 5 years and have the room to grow them in the future.

Watchlist criteria

To create a watchlist we first need to establish some criteria. We want companies that are of the highest quality, growing dividends, preferably are undervalued and have a market cap of less than $10 billion. This leads to the following criteria:

  • A market cap less than $10 billion
  • A return on equity of over 10% or at least better than industry average
  • A payout ratio below 50%
  • A Chowder Rule number over 12%
  • A Debt/Equity of less than 1.5
  • Undervalued by the dividend theory

After running my screen I was left with a total of 40 stocks that met all criteria. The majority of these stocks were banking stocks and the average undervaluation was 17.4% based on the dividend yield theory. The 10 with the largest undervaluation can be found here:

Stock 5 year average yield Current yield Undervaluation based on dividend yield theory Chowder Rule
Atrion Corporation (ATRI) 0.85% 1.14% 31.0% 16
Hawthorn Bancshares (HWBK) 1.81% 2.52% 39.8%


Capital City Bank Group (CCBG) 1.67% 2.25% 35.7% 35
Employers Holdings Inc. (EIG) 1.87% 2.36% 25.6% 32
FNCB Bancorp (FNCB) 2.28% 3.23% 43.8% 66
First National Corp. (FXNC) 1.62% 2.47% 53.0% 36
Huntington Ingalls Industries (HII) 1.57% 2.07% 31.4% 21
Macatawa Bank Corp (MCBC) 2.64% 3.36% 30.1% 25
Marten Transport Ltd. (MRTN) 0.59% 0.94% 59.6% 31
Summit Financial Group (SMMF) 2.26% 2.86% 27.1% 18

Below I will highlight my top 3 and provide some more information about them.

FNCB Bancorp

FNCB Bancorp, Inc. operates as the bank holding company for FNCB Bank that provides retail and commercial banking services to individuals, businesses, local governments, and municipalities in Northeastern Pennsylvania. During the past 5 years, the company saw its revenue grow by approximately 34.5%. The dip in 2019-2020 was due to a decrease in non-interest revenue. During 2018 the company received an insurance recovery, which they didn't in 2019. Therefore, the decrease is nothing to worry about.

Data by YCharts

Given the fact that interest rates are currently at near zero, it is a tad harder for financials to grow revenue as fast as say 20 years ago. The FED has said that it wants to keep interest rates low. Nevertheless, given the strong recovery in the economy and the inflationary pressure, we could see interest rates rise again in the short- to mid-term.

Nevertheless, the company's balance sheet is also pretty strong and the company has a very low debt/equity ratio of approximately 0.07.

Data by YCharts

If we look at the dividend, the company has a chowder number of 66 and has increased its dividend every year for the past 6 years. For people that are unaware the chowder number is made up of the 5 year dividend growth rate and the current yield. The 5 year DGR of FNCB is 62.3, thus making up the majority of the chowder number. The dividend is currently at 6 cents per quarter and this partly explains the high growth in the past few years, as a minor increase is a big percentage increase. However, given the low payout ratio of 31%, there should be ample room to grow the dividend in the coming years.

Data by YCharts

Marten Transport

Marten Transport, Ltd. operates as a temperature-sensitive truckload carrier for shippers in the United States, Canada, and Mexico. It operates through four segments: Truckload, Dedicated, Intermodal, and Brokerage. During the past 5 years, the company grew its revenue by 30.3%. The last few years the growth slowed down a bit and this is due to the current state of affairs in the trucking industry. During the past few years the fees in the trucking industries have been declining and this is something that investors should take into account if they want to purchase shares in Marten Transport.

Data by YCharts

The company does have a strong balance sheet and the company currently does not have any long-term debt. This gives them a lot of options if they want to increase their growth rate, as they have enough room to borrow additional capital.

Data by YCharts

If we look at the dividend, the company has a lower chowder number than FNCB at 31, as their 5Y DGR is 29.7, which is still not bad. The company currently pays out a dividend of 4 cents per quarter and has been increasing its dividend over the past 5 years. In addition to the normal dividend, the company has also paid out a special dividend 2 times in the past 5 years. At the current dividend, the payout ratio is a mere 14.1%, which should give MRTN enough room to keep increasing their dividend.

Data by YCharts

Huntington Ingalls Industries

A company that might be a bit more familiar to investors on Seeking Alpha is Huntington Ingalls Industries. The company is active in the defense industry and designs, repairs, manufactures military ships mainly for the US government. During the past 5 years, the company has grown its revenue by 32.4%. The company still has a backlog of $48.8 billion and this should help the company to grow earnings into the foreseeable future.

Data by YCharts

The company has a decent balance sheet and has a credit rating of BBB-, which means that they are investment grade. The company has a net debt/EBITDA of 1.33x (which is lower than the average of 1.9x for the industry) and a debt/equity of 0.85.

Data by YCharts

The dividend of the company is currently $1.14 per quarter and has increased their dividend for the past 9 years. The chowder number of the company is 21 which makes it the lowest of my favorites. The DGR 5 is at 19.25 and has been slowly decreasing over the past few years. Nevertheless, the company is still growing dividends in the mid-teens. The payout ratio is still low at 28.3%, which gives them ample room to grow the dividend.

Data by YCharts

Investor takeaway

Small- and mid-cap stocks tend to outperform their large-cap peers due to their smaller size. In this article, I highlighted the 10 most undervalued small- and mid-cap stocks from the CCC list. Out of these stocks, my favorites are FNCB, MRTN and HII. These stocks have grown their revenue over 30% in the last 5 years. Furthermore, these companies have low levels of debt and a payout ratio below 40%. Therefore, I expect them to further grow their dividends in the coming years.

This article was written by

Bjorn Zonneveld profile picture
I mainly focus on stocks that are unknown by the public and REITs. As for me: I am a BBA graduate who is pursuing a Master in Finance (MSF) at Erasmus University (Rotterdam, Netherlands) and work a student job in the real estate industry. My portfolio mainly consist of dividend growth stocks and REITs. Although I do have smaller positions in growth and value (non-dividend) stocks. My largest positions are: Enbridge, Abbvie and VICI.

Disclosure: I/we 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.

Additional disclosure: Use the watchlist as a starting point for your investments. This is in no way financial advice to start buying these small- and mid-cap stocks.

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