In early December, an article highlighted a lesser-known company from Ohio that had managed to increase its annual dividend for 50 consecutive years. This made me consider mid-cap stocks with strong dividends. The company in focus is RPM International (NYSE:RPM), which owns renowned brands such as Tremco, Rust-Oleum, DAP, Varathane, and Tremclad. RPM is a paint and coating manufacturing company, well-known to many DIY enthusiasts of home repair and renovations.
RPM is part of the ProShares S&P MidCap 400 Dividend Aristocrats ETF (BATS:REGL), a group of 46 mid-cap stocks that have raised their annual dividend for a minimum of 15 years. Mid-cap companies are traditionally defined as those with market capitalizations ranging from $2 billion to $10 billion. Even though REGL’s weighted average market cap stands at $6.9 billion, numerous stocks in the ETF have market caps exceeding $10 billion.
Today, I will discuss three selections from any market cap, regardless of whether they fit within the range. These three companies have sturdy business models and consistently grow dividends.
Williams-Sonoma (NYSE:WSM) is unquestionably one of my favorite companies in the S&P 500. Laura Alber, who has been leading the company as CEO since 2010, has a history of leadership at WSM dating back to 1995. In the past five years, WSM’s stock has appreciated by 271%, more than tripling the index. This success can be attributed to Alber’s excellent leadership and the company’s unique business model.
Throughout most of Alber’s tenure, Williams-Sonoma has operated an omnichannel business model, with online sales almost matching its physical store revenue. As early as September 2012, I was recommending its stock, primarily due to this balanced division of sales.
I was excited about Williams-Sonoma’s direct-to-customer business, which yields higher operating margins and represents 47% of its overall revenue, an increase from 45% year-over-year. Some specialists suggest that online revenues could account for up to 50% of the retail industry’s overall business within two decades.
In 2022, e-commerce made up 66% of its $8.7 billion annual revenue. The high margins from its online sales resulted in a remarkably high return on invested capital of 49.4%. Despite a slowdown, it continues to produce net margins above 10%, which is excellent. This is a stock to buy incrementally, adding to your position whenever it trades closer to $150, instead of its current price of $199.35. Keep an eye out.
Lincoln Electric (NASDAQ:LECO) hasn’t performed as well as WSM in the past five years, gaining only 157%. However, it has still managed to double the index’s return over the same period. It’s been a while since I last discussed this welding company when I recommended it in May 2023. It consistently shows excellent returns on invested capital with healthy revenue growth.
In Q3 2023, its sales rose 10.5% to a record $1.03 billion, with a record adjusted operating margin of 17.7% ($171.4 million). Its net income increased by 18.4% to $129.3 million, a net margin of 12.5%, 80 basis points higher than a year earlier. Its adjusted ROIC in the third quarter was 23.6%. The total debt was $1.11 billion, which is only 9.2% of its market cap.
In December, Lincoln Electric introduced Velion, a range of DC fast EV chargers that utilize its welding equipment expertise to deliver a quality product to American EV owners and businesses using EVs.
Steven Sumner, Lincoln Electric’s head of innovation, stated, “Our DCFC charger is the first and only American designed and American made EV charger to not only meet, but exceed, the requirements of the federal government’s National Electric Vehicle Infrastructure Formula Program.” This company could have a winning product on its hands. I appreciate its audacity.
Polaris (NASDAQ:PII) stock has fallen nearly 14% over the past year. The manufacturer of ATVs, SSVs, motorcycles, and snowmobiles is dealing with slow sales due to rising interest rates, which have reduced big-ticket discretionary spending. Despite the cyclical nature of its business, the company has increased its annual dividend for 28 consecutive years and has been profitable every year since it went public in 1987. It currently yields a reasonable 2.9%.
In addition to its dividend payments, Polaris took the opportunity in 2023 to repurchase $286 million of its stock over the past 12 months, buying back more than 5% of its stock over the past year. It had $204 million left on its share repurchase program as of Sept. 30, 2023.
A research update for the company was provided in November. “For 2024, amid an increasingly weaker retail outlook, we expect revenue to be flat to up modestly, with any growth driven by new vehicle releases and relatively stable utility demand in the off-road vehicle segment. We expect good operating cash flow generation as working capital requirements for inventory abate as supply chain lead times continue to ease in 2023.”
Of the 17 analysts covering PII stock, four rate it overweight or an outright buy, with 12 hold and one sell. The target price is $98, 11% higher than its current trading spot. Also, its shares are trading at 8.4x the 2024 EPS estimate of $10.43.
Let us know what you think, please share your thoughts in the comments below.
