In this article, we discuss 10 best mid-cap dividend aristocrats to buy. You can skip our detailed analysis of mid-cap stocks and their performance over the years, and go directly to read 5 Best Mid-Cap Dividend Aristocrats To Buy.
Investors commonly ignore mid-cap stocks due to their perceived higher volatility compared to large-cap equities. However, this notion isn’t entirely accurate. According to findings from Jensen Investment Management, high-quality mid-cap companies have shown resilience over the past decade, often keeping pace with or even outperforming the broader S&P 500 index. For instance, while quality mid-caps experienced a 10.6% decline in 2022, the S&P 500 suffered a greater loss of 18.1%. The report also mentioned that across various timeframes spanning three, five, and ten years ending in 2022, the performance outcomes have displayed mixed results. Quality mid-cap stocks consistently demonstrated comparable performance, delivering positive returns of 7.8%, 9.6%, and 12.2%, respectively. These figures stand in comparison to the returns of the S&P 500, which stood at 7.7%, 9.4%, and 12.6% over the same periods.
Various reports have shed light on the positive performance of mid-cap stocks. The S&P MidCap 400, which tracks the performance of 400 mid-sized companies, has surpassed the broader market and the S&P SmallCap 600 by 2.03% and 0.94% annually, respectively, from 1994 to 2019, as reported by S&P Dow Jones Indices. Another research by ProShares revealed the dividend factor of mid-cap stocks. The S&P MidCap Dividend Aristocrats Index includes a select group of companies that have consistently increased their dividends for 15 consecutive years or more. Since its inception in 2015, this index has consistently outpaced the broader S&P MidCap 400, achieving an annualized outperformance of 177 basis points while exhibiting lower levels of volatility. These mid-cap Dividend Aristocrats have demonstrated resilience in navigating market fluctuations over time. They have managed to capture most of the market’s upswings during bull markets while significantly mitigating losses during bear markets, which proves to be a valuable characteristic, especially in times of uncertainty. The report further mentioned that mid-cap dividend growers experienced distribution growth at an annualized rate surpassing 12% since 2015. This growth rate exceeded that of large-cap companies and recent inflation levels.
One general misperception of mid-cap stocks is that these companies reinvest a significant portion of their earnings to fund expansion, research and development, and other growth initiatives. However, according to analysts, investors might be missing out on some opportunities by doing so. Especially when these companies offer dividends, investors are advised to take a leap of faith and invest in small- and mid-cap (SMID) dividend payers. Sarah Radecki, CFA, equity portfolio manager at Principal Asset Management, spoke with the Wall Street Journal about the investment potential these companies offer. Here are some comments from the analyst:
“SMID dividend stocks provide an attractive tradeoff between risk and return, with the potential for relatively high total return, low volatility, and predictable growth of income. You may be able to secure an income stream from a smaller stock with the potential to grow over time, without paying sky-high prices.”
The Wall Street Journal report highlighted the strong performance shown by SMID dividend companies. These dividend stocks have delivered an annual return of 15.68% from 1975 to June 2023, surpassing both large-cap dividend-paying stocks and the overall stock market. Additionally, their volatility is approximately 15% lower than the average SMID stock. Moreover, these differences become even more significant among SMID stocks that consistently increase their dividend payouts. Over the last 35 years, these dividend-growing stocks have achieved more attractive annualized gains while exhibiting lower risk compared to the average SMID dividend payer.
The Procter & Gamble Company (NYSE:PG), Colgate-Palmolive Company (NYSE:CL), and PepsiCo, Inc. (NASDAQ:PEP) are some of the most prominent large-cap dividend aristocrat stocks to buy with decades of dividend growth streaks under their belt. However, in this article, we will take a look at some of the best dividend stocks from the mid-cap space.
Image by Steve Buissinne from Pixabay
Our Methodology:
For this list, we scanned the holdings of S&P MidCap 400 Dividend Aristocrats, which tracks the performance of mid-sized companies within the S&P MidCap 400 index that have maintained a consistent track record of increasing dividends annually for at least 15 years. From the index, we picked 10 dividend stocks that have garnered the most attention from hedge fund investors by the conclusion of Q4 2023, using data from Insider Monkey’s database. The stocks are ranked in ascending order of the number of hedge funds having stakes in them. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here).
10. Erie Indemnity Company (NASDAQ:ERIE)
Number of Hedge Fund Holders: 15
Erie Indemnity Company (NASDAQ:ERIE) is an American insurance company that mainly provides property and casualty insurance services. The company offers a quarterly dividend of $1.275 per share, having raised it by 7.1% in December 2023. This marked the company’s 34th consecutive year of dividend growth, which makes ERIE one of the best dividend stocks from the mid-cap sector. The stock has a dividend yield of 1.23%, as of March 10.
At the end of Q4 2023, 15 hedge funds in Insider Monkey’s database reported having stakes in Erie Indemnity Company (NASDAQ:ERIE), which remained unchanged from the previous quarter. The collective value of these stakes is nearly $74 million. Among these hedge funds, Millennium Management was the company’s leading stakeholder in Q4.
9. RLI Corp. (NYSE:RLI)
Number of Hedge Fund Holders: 18
RLI Corp. (NYSE:RLI) is an Illinois-based insurance company that specializes in underwriting property and casualty insurance for niche markets and unique risks, including specialty commercial and personal lines insurance. On February 8, the company declared a dividend of $0.27 per share, which fell in line with its previous dividend. Overall, the company has been growing its dividends consistently for the past 48 years, which makes RLI one of the best dividend stocks on our list. As of March 10, the stock has a dividend yield of 0.74%.
As of the close of Q4 2023, 18 hedge funds tracked by Insider Monkey held stakes in RLI Corp. (NYSE:RLI), the same as in the previous quarter. The total value of these stakes is more than $368.2 million.
8. Lancaster Colony Corporation (NASDAQ:LANC)
Number of Hedge Fund Holders: 21
Lancaster Colony Corporation (NASDAQ:LANC) is an American food company that primarily focuses on manufacturing and marketing specialty food products for the retail and food service markets. Currently, the company pays a quarterly dividend of $0.90 per share and has a dividend yield of 1.75%, as of March 10. It holds an impressive track record of growing its dividends, spanning over 61 consecutive years.
The number of hedge funds tracked by Insider Monkey owning stakes in Lancaster Colony Corporation (NASDAQ:LANC) jumped to 21 in Q4 2023, from 13 in the previous quarter. These stakes have a consolidated value of over $83.5 million. Among these hedge funds, Diamond Hill Capital was the company’s leading stakeholder in Q4.
7. Graco Inc. (NYSE:GGG)
Number of Hedge Fund Holders: 24
Graco Inc. (NYSE:GGG) operates in the manufacturing sector, specializing in fluid handling systems and equipment. The company provides a wide range of products primarily serving industries such as manufacturing, construction, automotive, aerospace, and healthcare. In December 2023, the company declared an 8.5% hike in its quarterly dividend to $0.255 per share. This marked the company’s 22nd consecutive year of dividend growth, which places GGG on our list of the best dividend stocks from the mid-cap sector. The stock’s dividend yield on March 10 came in at 1.10%.
Graco Inc. (NYSE:GGG) reported a strong cash position in FY23. The company’s operating cash flow for the year came in at over $651 million, compared with $377.4 million in 2022. Moreover, it ended the year with $538 million available in cash and cash equivalents, up from $340 million in the previous year.
Insider Monkey’s database of Q4 2023 indicated that 24 hedge funds held stakes in Graco Inc. (NYSE:GGG), up from 22 in the preceding quarter. These stakes are collectively valued at nearly $435 million. With over 1.3 million shares, Durable Capital Partners was the company’s largest stakeholder in Q4.
6. MSA Safety Incorporated (NYSE:MSA)
Number of Hedge Fund Holders: 24
An American manufacturing company, MSA Safety Incorporated (NYSE:MSA) ranks sixth on our list of the best dividend stocks from the mid-cap space. The company’s quarterly dividend comes in at $0.47 per share for a dividend yield of 1.01%, as of March 10. It has been rewarding shareholders with growing dividends for the past 53 consecutive years.
MSA Safety Incorporated (NYSE:MSA) was a part of 24 hedge fund portfolios at the end of Q4 2023, up from 18 in the previous quarter, according to Insider Monkey’s database. The stakes owned by these hedge funds have a collective value of over $293 million.
Conestoga Capital Advisors mentioned MSA Safety Incorporated (NYSE:MSA) in its Q4 2023 investor letter. Here is what the firm has to say:
“MSA Safety Incorporated (NYSE:MSA): MSA develops, manufactures, and sells products that enable a safe and healthy work environment such as portable/fixed gas detection systems, firefighter helmets and protective apparel, and industrial head protection. MSA is a market leader in all its segments, is an innovator in the space and has broad product distribution. We view MSA as a defensive name with accelerating growth being driven by market share gains in firefighter protection as well as improving demand in portable/fixed gas detection systems.”
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Disclosure. None. 10 Best Mid-Cap Dividend Aristocrats To Buy is originally published on Insider Monkey.