We recently compiled a list of the 10 Best Mid-Cap Dividend Aristocrats To Buy. In this article, we are going to take a look at where Graco Inc. (NYSE:GGG) stands against the other mid-cap dividend stocks.
Investors often overlook mid-cap stocks, assuming they are more volatile than large-cap equities. However, this perception is not entirely accurate, and analysts are increasingly favoring mid-caps. A recent analysis by Goldman Sachs suggested that instead of debating between large-cap and small-cap stocks, investors should prefer mid-caps. Historical data also supports this perspective, with the mid-cap benchmark achieving an 11% compound annual growth rate since 1985, compared to 9% for the broader market and 8% for the small-cap Russell 2000, according to strategist Jenny Ma. Here are some other comments from the analyst:
“Today, mid-cap equities offer investors superior earnings growth at a reasonable price compared with large-caps. Mid-cap stocks have typically outperformed both large-caps and small-caps during the 12 months following the first Fed rate cut in an easing cycle.”
A Bloomberg analysis also revealed that over the past 30 years, mid-cap stocks have significantly outperformed both the broader market and small-cap stocks in cumulative returns. Mid-caps achieved a compound annual growth rate exceeding 12%, compared to approximately 11% for large-caps. This seemingly small difference has a substantial impact over time. For example, a $100,000 investment in mid-cap stocks at the end of 1994 would now be worth around $3 million—about $700,000 more than an equivalent investment in the market. The report also mentioned that between 2000 and 2005, mid-cap stocks outshone all other categories, outperforming not only the broader market but also small-caps and the equal-weighted large-cap index. Their ability to weather the fallout from the internet bubble played a significant role in driving their long-term outperformance over the years.
Also read: 12 Best Long-Term Dividend Stocks to Invest in Right Now
A common misconception about mid-cap stocks is that these companies reinvest most of their earnings into growth initiatives like expansion and R&D, leaving little for dividends. However, analysts suggest that this view may cause investors to overlook valuable opportunities. Mid-cap and small-cap (SMID) dividend-paying stocks, in particular, deserve attention. According to a Wall Street Journal report, SMID dividend stocks have delivered an impressive annual return of 15.68% from 1975 to June 2023, outperforming both large-cap dividend payers and the broader market. In addition, their volatility is about 15% lower than the average SMID stock. The advantages are even greater for SMID stocks that consistently grow their dividends, as these have demonstrated higher annualized returns with lower risk over the past 35 years compared to typical SMID dividend payers.
The MidCap 400 Dividend Aristocrats Index monitors the performance of companies that have consistently increased their dividends for at least 15 consecutive years. A ProShares report highlighted that, since its launch in 2015 through 2022, the index has delivered annualized returns 177 basis points higher than the broader MidCap 400, all while maintaining lower volatility. These mid-cap Dividend Aristocrats have shown resilience during market turbulence by capturing much of the upside during rising markets while limiting losses during downturns—an especially valuable trait during periods of uncertainty. The report further mentioned that during this period, mid-cap Dividend Aristocrats have increased their payouts at an annualized rate exceeding 12%, outpacing both large-cap dividend growth and recent inflation rates. Given this, we will discuss some of the best mid-cap dividend aristocrat stocks.
Our Methodology:
For this list, we scanned the holdings of MidCap 400 Dividend Aristocrats, which tracks the performance of mid-sized companies within the 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 Q3 2024, using data from Insider Monkey’s database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A technician in a factory controlling the production of fluid and powder materials.
Graco Inc. (NYSE:GGG)
Number of Hedge Fund Holders: 27
Graco Inc. (NYSE:GGG) is an American industrial manufacturing company that specializes in fluid-handling systems and products. The company is highly committed to continuous innovation, consistently investing around 4% of its revenue in research and development (R&D), more than twice the average spent by its peers. By dedicating more resources to R&D, Graco collaborates closely with its customers to develop tailored products and accessories that meet their specific needs. This partnership fosters strong, lasting relationships, creating a significant competitive advantage for the company’s operations. In the past six months, the stock has surged by over 9%.
Graco Inc. (NYSE:GGG) reported revenue of $520 million in the third quarter of 2024, which fell by 4% from the same period last year. The company continued to face weak demand in its core end markets, particularly in the Asia Pacific region, which negatively impacted sales for the third quarter. The decline in demand was broad-based, with the Industrial and Process segments experiencing the most significant effects. However, despite the lower volume, the company’s gross margin remained strong.
Madison Investments highlighted the strengths of Graco Inc. (NYSE:GGG)’s business in its Q3 2024 investor letter. Here is what the firm has to say:
“During the quarter we added three new holdings: Graco Inc. (NYSE:GGG), Lithia Motors, and Asbury Automotive. Graco is the leading manufacturer of fluid handling equipment designed for difficult-to-handle materials with high viscosities, abrasive and corrosive properties, or precise ratio control. While the company has customers across several cyclical end-markets, around 40% of revenue is from parts and accessories, which have a more stable demand profile. Graco’s premium products provide a strong return on investment (ROI) for its customers, helping to reduce their use of labor, material, and energy as well as improve quality and environmental performance. The company’s products also represent a small portion of an end users’ total expense. As a result, Graco has strong pricing power and best-in-class margins, including gross margin above 50% and earnings before interest and taxes (EBIT) margin approaching 30%. We’ve long admired this business and their exceptional management team. With the stock underperforming on general economic weakness, valuation in the shares appeared reasonable, providing a good entry point.”
On December 6, Graco Inc. (NYSE:GGG) declared a 7.8% hike in its quarterly dividend to $0.275 per share. This marked the company’s 23rd consecutive year of dividend growth, which makes GGG one of the best dividend stocks on our list. The stock has a dividend yield of 1.15%, as of December 16.
With a collective stake value of over $375.6 million, 27 hedge funds tracked by Insider Monkey held stakes in Graco Inc. (NYSE:GGG) at the end of Q3 2024. With over 1.1 million shares, Fundsmith LLP was the company’s leading stakeholder in Q3.
Overall GGG ranks 4th on our list of the best mid-cap dividend aristocrats to buy. While we acknowledge the potential of GGG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than GGG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
