While many investors tend to think of big blue chips when they think of dividends, small and midcap stocks can be attractive hunting grounds for income, explains Richard Moroney, editor of Upside.
Regardless of the yield, investors should focus on companies that are fundamentally strong and attractively valued. Reviewing our Buy List, we see several stocks meeting these criteria.
The three stocks reviewed below are projected to grow earnings per share and revenue this year — and their profit estimates are rising. All earn solid scores in Quadrix (our quantitative ranking system) for Momentum, Quality, Earnings Estimates, and Overall. All three also earn our "Best Buy" rating.
Jabil (JBL) provides manufacturing services to large technology companies including Apple (AAPL), Cisco Systems (CSCO), and Tesla (TSLA). Its boasts impressive operating momentum and a solid growth outlook.
For the 12 months ended February, Jabil grew earnings per share 50%, sales 9%, and cash from operations 23%. Free cash flow totaled $296 million during that stretch, up from $13 million for the prior 12-month period. Analyst estimates for fiscal 2022 ending August are up sharply in the past 30 days, with the consensus projecting 29% profit growth on 12% higher sales.
Jabil hasn’t raised its dividend since making a 14% hike in 2011. In March, the company dashed any investor hopes of a near-term dividend increase by saying that stock buybacks currently make more sense. But management hinted that a multi-year plan for dividend growth will be eventually considered — just not now. Share repurchases have slashed Jabil’s stock count by 4% in the past year and 21% over the past five years.
Matson (MATX) — an ocean transportation and logistics firm — has grown per-share profits, revenue, and operating cash flow by more than 12% in each of the past six quarters. Analysts expect Matson’s double-digit growth pace to continue through at least the June quarter.
Matson’s stock has rallied 38% this year. Yet shares trade at just five times estimated 2022 earnings, versus the median of 19 for the S&P 1500 Index industrials sector. Although growth may decelerate in the second half of 2022, analyst estimates are up sharply over the past 60 days.
In the absence of suitable acquisitions and reinvestment in the business, Matson says it will consider plowing excess cash into share repurchases and special dividends. The company raised its dividend 30% last year, well above its typical annual dividend growth of 5% to 6% from 2014 to 2020. Matson also repurchased 1.8 million shares in the second half of 2021, representing 4% of outstanding shares.
Tronox (TROX) mines minerals used in various applications and products. Representing about 80% of annual sales, titanium dioxide is a brightening pigment for coatings, paper, and plastics. The company enjoys robust growth prospects and a cheap valuation.
With analyst estimates up sharply over the past 90 days, Tronox is expected to grow earnings per share 38% this year and 16% in 2023. That growth follows per-share profits quadrupling in 2021. The stock trades at just six times estimated current-year earnings, below the median of eight for commodity-chemicals stocks in the S&P 1500 Index.
Tronox raised its quarterly dividend 25% to $0.125 per share in February, roughly in line with its three-year annualized growth rate of 26%. Management says annual dividend growth is a priority, along with share repurchases.
