Are you having a hard time finding stocks to buy in this difficult economic environment? After a recent 800-point drop in the Dow Jones Industrial Average (.DJI), I’m sure you are.
One solution to bridge the gap between capital preservation, capital appreciation and income generation is to invest in dividend-paying mid-cap stocks. These are stocks with market caps between $2 billion and $10 billion.
The great thing about mid-cap stocks is that they tend to be companies that are growing but that have a focus on the domestic economy. That keeps them somewhat insulated from the effects of a U.S.-China trade war.
With dividend stocks, especially dividend aristocrats, which have increased dividends for 25 years straight, investors can find an even better solution. These stocks generate income in good times and bad, providing a decent return even when there’s little upside potential.
If you’re looking for the best of both worlds, here are 10 mid-cap dividend stocks to buy now.
Olin is a vertically-integrated global manufacturer of chemicals that include chlorine, caustic soda, bleach and many more. It’s also known for Winchester, a large manufacturer of ammunition.
Olin has three operating segments: Chlor Alkali Products and Vinyls, Epoxy and Winchester. In the most recent quarter which ended June 30, all three segments saw a decrease in revenues. While it still makes money on an adjusted EBITDA basis — $205 million in Q2 2019 vs. $325 million in Q2 2018 — the company’s long-term debt of $3.2 billion is 119% of its current market cap.
As for dividends, it currently yields nearly 4.8% which is very attractive. OLN has plenty of free cash flow to continue paying it out to shareholders.
Currently trading at 15 times its forward earnings, Olin is a good mid-cap value play.
Embotelladora Andina, otherwise known as Coca-Cola Andina, has been producing Coca-Cola (KO) products in Chile since 1946. It also has operations in Argentina, Brazil and Paraguay.
The company’s American depository receipt currently yields 2.6%. Over the past five years, its payout ratio has varied from a low of 69% in 2017 to a high of 88% in 2018.
Five Chilean families each own 20% of the holding company that controls Coca-Cola Andina through a 44.4% ownership stake. Coca-Cola owns 7.3% of the beverage company.
In terms of market share, Coca-Cola has 63% of the Chilean soft drink market and 45% of the Chilean juice market. Within the four markets that it competes, it has a 65% market share of soft drinks, 31% of water and 42% of juices.
Looking at its balance sheet, it has $850 million in net debt, which is a reasonable 29% of its market cap.
You’re not going to get capital appreciation like Amazon (AMZN) but you will do well long-term buying AKO/B stock under $20.
Tapestry is the parent company of both Coach and Kate Spade. It was already a beaten-down stock before it announced fourth-quarter 2019 results Aug. 15. Tapestry stock fell 22% on the news and is now down almost 42% on the year.
Although its Coach brand delivered same-store sales growth of 2% in the second quarter, Kate Spade saw comparable store sales drop 6%. Since TPR acquired Kate Spade in September 2017, the brand has not generated a quarter with positive comps.
It is not clear when Kate Spade’s business will recover. In addition, the company said that due to Kate Spade, its profits for the year will be flat compared to last year.
Like a lot of names on this list, Tapestry has to be considered a deep value play at the moment.
In 2019, Tapestry still managed to generate $814 million in operating income from $6.03 billion in sales, despite a severe underperformance from Kate Spade. Equally important is the fact that Kate Spade’s operating income was $187 million in 2019, just $10 million less than the previous year on a 7% decline in same-store sales.
Down 42% on the year, I like its chances (unless there’s a recession) of rebounding in 2020.
The U.S.-China trade war has not been kind to Whirlpool, which has seen its volumes fall off a cliff due to a 12% increase in washing machine prices as a result of the tariffs on Chinese imports.
President Donald Trump wants Whirlpool to create U.S. jobs, but knocking $500 million off its quarterly revenue as a result of these tariffs is not the way to go about it. According to the National Interest, Whirlpool and other foreign manufacturers have created 1,800 jobs since the tariffs went into effect at a cost of $800,000 per job.
Despite the sales and profit declines due to the tariffs, Whirlpool’s stock is actually up almost 26% year-to-date through Aug. 19.
A recent survey of appliance repair technicians found that Whirlpool has the most reliable washers, dryers and refrigerators as well as the second-most reliable stoves, ranges and dishwashers.
Yielding 3.5% despite a big rebound in 2019, Whirlpool will pay you to wait out the tariff war.
Just fitting in under the $10-billion ceiling for mid-cap stocks, Vail Resorts is up over 13% year-to-date through Aug. 19. The operator of ski resorts in the U.S. and Canada has an exemplary performance over the past 15 years — it’s delivered an annualized total return of almost 20% to its shareholders.
It seems people can’t get enough skiing. And Vail can’t make enough acquisitions.
In July, the company announced that it would buy 100% of Peak Resorts, the owners of 17 different ski areas in the northwest U.S. including Mount Snow in Vermont and Wildcat in New Hampshire.
Vail paid $264 million for the 17 hills. That’s nothing compared to the $1.4 billion CAD it paid for Whistler Blackcomb in 2016.
As long as interest rates remain low, you can be sure MTN will continue to gobble up ski resorts around the world, creating a tremendous amount of cash flow in the process.
If you’re a golfer, you’ve likely seen Toro’s turf maintenance machines out on the golf course. Toro is the world leader in turf maintenance products. A few years ago, it got into the winter business buying Boss Snow Plows for $227 million.
Toro is one of those companies that delivers for shareholders, yet tends to fly under the radar.
Up 30% year-to-date through Aug. 19 including dividends, TTC stock has a 15-year annualized total return of 16.5%, which is almost double the U.S. total market over the same period.
Recently, Toro announced a new strategy for its underground construction business which would see it combine its Ditch Witch, American Augers and Trencor businesses under one operating unit.
By combining the three businesses, Toro will improve its marketing, sales and service while lowering the overall cost of providing these services.
The company expects to generate $3.2 billion in revenue in fiscal 2019 with earnings per share of $2.90-$3.00 or 20 times its forward earnings.
FactSet Research Systems
Although FactSet Research Systems has a market cap of $10.7 billion, above the high-end for mid-cap stocks, most mutual funds and exchange-traded funds will still buy FDS because the $10-billion ceiling is more of a guideline than a hard-and-fast rule.
FactSet, for those unfamiliar with the company, provides financial data and portfolio analytics to the investment community. Approximately 83% of its annual subscription revenue comes from buy-side clients including mutual funds and pensions.
FactSet’s having a strong year so far in 2019. Its stock is up 39% year-to-date. Over the past 15 years, it’s averaged an annualized total return of 16.7%, far superior to the total market.
In fiscal 2019, FactSet expects revenues of $1.43 billion with adjusted earnings of $9.85 per share. Both of these numbers are higher than its original guidance at the beginning of the fiscal year.
In the latest quarter, FactSet’s adjusted operating income jumped 16% to $105.7 million on a 7% increase in revenues.
At 26 times its forward earnings, FDS stock isn’t cheap, but in the long term, you’re going to be happy you own it.
Aqua America is a water utility providing services to more than three million people in eight states.
Despite missing both its revenue and earnings estimates for the second quarter, Aqua America’s stock has kept moving higher since its Aug. 6 report. Up 31% year-to-date, WTR stock yields a reasonable 2.1% while providing attractive capital appreciation.
Over the past 15 years, it’s achieved an annualized total return of 10.3%.
Last October, Aqua America announced that it would pay $4.3 billion to buy Peoples Natural Gas, a Pittsburgh-based natural gas distribution company providing service to more than 740,000 customers in Pennsylvania, West Virginia and Kentucky. Once completed, the company will operate regulated utilities in 10 states serving more than five million people.
With a second platform for growth, investors can expect double-digit returns over the next 3-5 years.
At the end of July, Polaris launched its 2020 lineup of side-by-side and ATV offerings, just in time for the company’s 65th anniversary.
In 2019, Polaris’ bottom line has been hit by Chinese tariffs. Nonetheless, it still expects to generate at least $6.10 a share in earnings in the fiscal year, despite an increase in the Section 301 tariffs from 10% to 25%. On the top line, it expects sales to grow by at least 12% with its off-road vehicles leading the charge.
In addition, the company’s 2018 acquisition of Boat Holdings for $807 million has already added $367 million in sales through the first six months of the year against zero sales in the previous year before it entered the boat business.
Polaris participates in a very cyclical business. While I like the company’s overall portfolio of products and fully expect it to deliver for investors in the long term, you do have to have a buy-and-hold view in order to profit from PII stock. There will continue to be large peaks and valleys in its stock price.
MSC Industrial Direct
MSC Industrial Direct is an industrial distributor that provides more than 1.6 million products from over 100 branches and 12 fulfillment centers to customers in the U.S., Canada, Mexico and the U.K.
In 2018, it had $3.2 billion in revenue, 10.7% higher than a year earlier.
The company reported its Q3 2019 results July 10. It missed on both the top- and bottom-line sending its stock 7% lower in the month since reporting earnings. It’s down 9% year-to-date.
Overall, however, the company’s results for the first six months of the year aren’t horrible with revenues of $2.52 billion, 6.6% higher than a year earlier, on operating income of $309.5 million, 1% lower than in the first six months of fiscal 2018.
MSM stock is instituting a three-part plan to improve sales, lower costs and increase profitability.
Trading at 12 times its forward earnings, a much lower multiple than its historical average, MSM stock is a nice value play at the moment.