3 Under-the-Radar Dividend Champions

The Dividend Champions are stocks that have raised their payouts for at least 25 years in a row. These companies have proven that they can manage through recessions, while continuing to pay dividends each year, and raise their dividends on an annual basis.

These three names fly under the radar of many investors. They have much smaller market caps than the large-cap Dividend Champions. But they have long histories of dividend growth, and market-beating yields.

One of the Best Dividend Streaks in the Entire Market

Lancaster Colony LANC has been making food products since 1969, after shifting away from housewares. The move has afforded the company some meaningful growth in the past five decades and the stock has a $5 billion market capitalization on $1.9 billion in annual revenue.

Lancaster Colony makes various meal accessories like croutons and bread products in frozen and non-frozen categories. Lancaster also has one of the best dividend increase streaks in the entire market, with 61 years of consecutive increases.

Lancaster posted fiscal third-quarter earnings on May 2. The company reported modest 1.4% top-line growth to $471.4 million, although that set a new record. Retail net sales were up 0.3% year over year to $248 million, while Foodservice revenues were up 2.6% to $223 million.

Consolidated gross profit was up $10.3 million, or 10.9%, to $104.5 million. The gain was driven by favorability in pricing net of commodity costs, cost saving initiatives, and volume expansion.

Net income was $1.03 per share, up from $0.89 a year ago. Exit costs for the Angelic Bakehouse and Flatout brands will reduce earnings by $0.41 per share this year.

We are forecasting EPS growth of 5% annually ahead, comprised of low single-digit sales and growing margins over time, with the caveat that margins are generally volatile. Lancaster does not buy back stock. The company’s average revenue growth has been and should remain in the low single-digits.

Organic growth has been slow for Lancaster Colony, but it does complete sizable acquisitions regularly. After a decline in earnings in 2020, Lancaster has failed to get back near its prior highs in terms of earnings. We believe the company has a very strong chance to set record earnings again in 2024.

We are forecasting modest dividend growth annually for the next five years as Lancaster Colony continues its impressive streak of payouts to shareholders. The stock has a 2024 payout ratio expected to be around 57%, which indicates a secure dividend.

LANC stock currently yields 2.0%.

Go Off the Beaten Path for Yield

Polaris PII designs, engineers, and manufactures snowmobiles, all-terrain vehicles (ATVs) and motorcycles. In addition, related accessories and replacement parts are sold with these vehicles through dealers located throughout the U.S. The company operates under 30+ brands including Polaris, Ranger, RZR, Sportsman, Indian Motorcycle, Slingshot and Transamerican Auto Parts.

In the 2024 first quarter, PII’s revenue decreased 20.2% to $1.74 billion. Adjusted EPS of $0.23 compared very unfavorably to $2.05 in the prior year, but topped expectations by $0.14. For the quarter, Marine sales declined 53%, On-Road fell 14%, and Off-Road, the largest component of the company, was down 16%.

Decreases in all three businesses were due to lower volumes. Off-Road was negatively impacted by weakness in snow and off-road vehicles, but Indian Motorcycle sales in the On-Road business outpaced the market.

Polaris is coming off a few years of exceptional growth, which has made for difficult comparisons. Over the long-term Polaris can generate growth via the ongoing replacement need for ATVs, snowmobiles and similar vehicles, continued growth in international markets, bolt-on acquisitions, and margin expansion.

Polaris enjoys a competitive advantage through its brand names, low-cost production, and long history in its various industries, allowing the company to be the leader in ATVs and number two in snowmobiles and domestic motorcycles.

The dividend has been increased for 29 consecutive years. Moreover, with a reasonable dividend payout ratio around 33% and the potential for growth, this payment could play an important role in shareholder returns over time.

PII stock currently yields 3.3%.

Thompkins Financial (TMP)

Tompkins Financial TMP is a regional financial services holding company headquartered in Ithaca, NY that can trace its roots back more than 180 years. It trades with a market capitalization of $650 million and has total assets of about $8 billion, which produce about $300 million in annual revenue.

The company offers a wide range of services, including checking and deposit accounts, time deposits, loans, credit cards, insurance services, and wealth management to its customers in New York and Pennsylvania.

Tompkins posted first-quarter results on April 26, which were somewhat mixed, as the company beat estimates on profits, but fell short on the top line. EPS came to $1.18, which was $0.11 ahead of estimates. Revenue was off 2.5% year over year to $73 million, but missed estimates by $1.1 million.

Net interest margin for the quarter was 2.73%, which was nine basis points worse than the fourth quarter, and 26 basis points off from the year-ago period. Net interest margin is a critical profitability metric for banks, and the higher, the better.

Total deposits were $6.4 billion, up $50 million, or 3.1% on an annualized basis, from December. The change was $59 million, or 0.9%, from the year-ago period. Tompkins finished the quarter with a loan-to-deposit ratio of 87.5%, essentially flat from Q4.

Tompkins has raised its dividend for 37 consecutive years, and we don’t see this streak in jeopardy by any means. Due to its modest payout ratio of 58% projected for 2024, it has ample room to keep growing its dividend, even with slower earnings growth.

TMP stock currently yields 5.4%.

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At the time of publication, Ciura had no positions in any stocks mentioned.