Mid-cap dividend stocks are the best bargain on the board right now; many great under-the-radar mid-cap stocks sit in a “sweet spot” that accommodates dividend safety and growth, asserts Brett Owens, editor of Contrarian Outlook.
It’s easy to overlook these names — the media doesn’t talk about them as much. But that information void is exactly how we can reap deep discounts in this mid-sized space. Let’s look at some mid-caps in the financial sector that are trading on the cheap.
New York Community Bancorp (NYCB) is the holding company for New York Community Bank, a savings bank with 237 branch offices serving five states — and rather than being regionally locked, it serves the northeast (N.Y./New Jersey), Midwest (Ohio), Southeast (Florida) and Southwest (Arizona).
Unlike many financial stocks with outsized yields, NYCB is just a regular, run-of-the-mill bank. It has nearly $60 billion in assets across a wide array of traditional offerings, such as checking and savings accounts, mortgages, business accounts, commercial lending and more.
However, NYCB is trading for cheap — and delivering an even fatter yield than normal — because of a roughly 30% decline from its 2022 highs that’s well worse than its contemporaries. Why is this stock getting crushed? Part of it is just NYCB being carried along for the financial-sector ride lower. Part of it was recently reported quarterly results that were merely in line with estimates.
But also weighing on shares is an extension of a merger with Michigan-headquartered Flagstar Bancorp (FBC), which would see the deal likely close in the second half of 2022, and the announcement that the new combined company would need the blessing of both the Fed and the Office of the Comptroller of the Currency — and the latter isn’t a slam-dunk.
And even if it is approved, Flagstar, which depends heavily on its mortgage business, has its own struggles, as evidenced by a wide quarterly miss. Meanwhile, the sweet dividend looks safe, M&A or not. But whether NYCB can actually turn its value into additional upside is something of a gamble that hinges on both successfully merging with Flagstar, and Flagstar carrying its weight.
Another high-yielding financial worth a look is Old Republic International (ORI) — a general- and title-insurance provider whose decent headline yield belies a far larger chunk of change being tossed to investors. Old Republic is part of an elite group of stocks that most investors tend to overlook; ORI is a particularly noteworthy mid-cap Aristocrat, at four decades of uninterrupted payout hikes.
But what really makes Old Republic International is that it keeps reliably raising its payout and has a pretty good regular yield while also overseeing one of the more responsible dividend programs you’ll find — a program that, when times are good, can shift that payout into high gear.
ORI has a two-part dividend system where it pays out regular quarterly dividends, but also special annual payouts based on its profits for the year. For instance, a $1.50-per-share special dividend delivered last fall brings ORI’s yield into double digits. (Just remember: These special dividends can vary from year to year.)
OneMain Financial (OMF) provides personal installment loans to millions of Americans, many of whom have non-prime credit scores. It can be a turbulent business, but it did grow like a weed during COVID.
And while it’s cooling off, it hasn’t chilled. Delinquencies, for instance, have been ticking up over the past few months, but that’s mostly seasonal — they’re actually slightly lower year-over-year. OMF shares are performing admirably compared to the sector as a result.
This is a hardy business — one that expects itself to be profitable even if the U.S. slips into recession. Meanwhile, it’s improving upon shareholder rewards in not one but two ways. First, is higher buybacks; in late 2021, the company upped its buyback authorization from $200 million to $300 million.
I also expect bigger dividends. In February 2022, the company announced a whopping 35% hike in its quarterly payout, to 95 cents per share. It was 25 cents just three years ago.
Now, based on that quarterly dividend, OMF yields right around 7.7%. But OneMain is another routine special-dividend payer, and that sum has improved for years as well. Once you factor in a $3.50-per-share special payout from August 2021, OMF’s true yield is actually above 12%.