2 Mid-Cap Dividend Growers Off To A Hot Start In 2024

As US stock indices continue trading near all-time highs, a diverse range of sectors, industries, and individual companies have been embraced as market winners.   

Notably, artificial intelligence (AI) stocks continue to dominate much of the market buzz across both Wall Street and even Main Street as non investors are paying attention to Nvidia’s ultra-hot performance.    

Beyond the sptolight on AI, there are indeed many other standout performers. The rising popularity of weight loss drugs and other biotechnology breakthroughs are making health care stocks an underappreciated hot trend in 2024. The industrial sector is also outpacing the broader market.  

Another source of significant gains, though less discussed, is dividend growth companies. These are companies that have increased their cash dividend payouts for many years.  

Why do they matter now? A couple of reasons: 

First, with the Federal Reserve widely expected to lower benchmark interest rates this year, earnings on bonds and savings accounts will head lower. Investors will therefore seek out new venues to offset an anticipated drop in income and dividend growth stories may takeover the spotlight.  

Second, with the stock market hitting fresh record highs seemingly every week, the valuations of many mega-cap tech winners have been stretched. This has some investors shifting towards more value-oriented stocks.  

Encouragingly, mid-cap ‘Dividend Kings’, that is companies that have increased their dividend payouts for at least 50 years, still offer attractive value and an interesting investment proposition. 

Mid-Cap Dividend Grower #1: Lancaster Colony Corp. (LANC)  

Lancaster Colony is up 26% so far this year compared to roughly 8% for the S&P 500. The company, best known for operating s specialty food brands like Marzetti, New York Bakery, and Sister Schubert’s, received a signficant boost from its fiscal 2024 second-quarter earnings release.  

The company blew past Wall Street earnings estimates thanks to higher demand from restaurant and foodservice customers, higher pricing, and effective cost-cutting measures.  

Record sales and profits have set the stage for a strong second half of fiscal 2024. This positive trend supports Lancaster Colony’s potential to raise its quarterly cash dividend, which has already seen 61 consecutive years of increases. The consumer staple’s dividend yield isn’t huge at 1.7%. Given analysts’ price targets reaching up to $236 following the Q2 report, the prospects for both price appreciation and dividend growth are enticing. Given analysts’ price targets reaching up to $236 following the Q2 report, the prospects for both price appreciation and dividend growth are enticing.  

Mid-Cap Dividend Grower #2: Tennant Co. (TNC) 

Tennant is a leading global provider of scrubbers, sweepers, and other industrial cleaning equipment. What the company lacks in flashy growth prospects, it makes up for in reliable cash flow generation and dividends.  

Tennant has increased its cash dividend for 52 straight years and yet still pays out a small portion of profits as dividends. Its forward payout ratio — the percentage of future earnings expected to go towards dividends — is less than 20%.  

This stock is up 19% year-to-date and within striking distance of last month’s $117 record peak. However, with a price-to-earnings (P/E) ratio of 19x, Tennant is priced affordably compared to the industrial sector’s average of 28x. On the heels of posting blowout fourth quarter profits, the company just announced that it is acquiring a long-time European distributor.  

This acquisition is expected to positively affect profitability and maintain Tennant’s unblemished record of dividend increases.