3 Under-the-Radar Dividend Stocks With High Yields
These quality lesser-known dividend names have attractive yields and secure payouts.
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The average dividend yield in the S&P 500 Index remains low at around 1.3%. As a result, many stocks have lower dividend yields than they did several years ago, due to rising share prices.
However, there are still quality dividend stocks with high dividend yields.
Importantly, the best high dividend stocks can maintain their dividends over time, even during recessions.
These three dividend stocks have yields above 4%, and have secure dividend payouts.
MSC Industrial Direct
MSC Industrial Direct MSM is one the largest direct marketers and distributors of metalworking and maintenance, repair, and operations (MRO) products in North America. The company has six customer fulfillment centers, 10 regional inventory centers and 38 warehouses.
On June 25, MSC announced its acquisition of ApTex, Inc., a production-oriented industrial distributor, and Premier Tool Grinding, Inc., a designer and manufacturer of carbide cutting tools. The two companies generated more than $20 million in in 2023.
On July 2, MSM reported fiscal third-quarter results. Net sales for the quarter came in at $979 million, a 7.1% year-over-year decline. Adjusted income from operations decreased 19.6% to $111.5 million. The adjusted operating margin was weaker than in the prior year, at 11.4% vs. 13.1%.
Adjusted net income decreased by 22.9% to $75.2 million and adjusted diluted EPS declined by 23.6% to $1.33 from $1.74 in the same prior year period. Leadership reduced its FY outlook, now expecting adjusted operating margin to come in at 10.5% to 10.7%.
MSM has a nine-year EPS compound annual growth rate of 5.3%, and a five-year average growth rate of 4.3%. We estimate that MSM can grow forward earnings at around 12%, partly due to its relative low point for 2024. The company has been able to regularly increase product prices, but is now experiencing margin weakness in FY 2024.
The company successfully completed the first chapter of its Mission Critical Program in fourth quarter 2023, and it grew over 500 basis points above the Industrial Production Index, improved adjusted operating margin by more than 200 basis points, and improved ROIC into the high teens since fourth quarter 2020.
It has now announced chapter two of this program, aiming to outgrow the Industrial Production Index by at least 400 basis points, and margins of at least 20% through a business cycle. Longer term, the business aspires to achieve mid-teens operating margins and return on invested capital of 20%.
MSM’s competitive advantage stems from its superior scale and execution. The company has roughly 2.4 million SKUs and boasts a strong and quick order fulfillment rate.
MSM stock currently yields 4.1%.
Auburn National
Auburn National Bancorporation AUBN is a bank holding company with total assets of approximately $1.0 billion as of June 30, 2024. Through its principal subsidiary, AuburnBank, the company provides a full range of banking services to commercial and retail customers.
AuburnBank is community-oriented and focuses primarily on offering commercial and consumer loan and deposit services to individuals and small and middle-market businesses in East Alabama, including Lee County and surrounding areas. The bank has eight offices and 13 ATM locations throughout the communities it serves. The company was founded in 1907 and has 150 employees.
On July 23, Auburn National released its second-quarter results for the period ending June 30, 2024. For the quarter, the company reported net earnings of $1.7 million compared to net earnings of $1.9 million for the same quarter last year. Reported earnings per diluted share for the same periods were $0.50 and $0.55.
The company's second-quarter performance demonstrated continued improvement in the business, particularly in net interest income and credit quality. Net interest income for the quarter was $6.7 million, consistent with the first quarter of 2024, and the net interest margin improved slightly by 2 basis points to 3.06%.
Additionally, the bank demonstrated robust financial health with an annualized loan growth rate of 9%, excellent credit quality with nonperforming assets at just 0.08% of total assets, and a growth in period-end deposits to $946.4 million, an increase of $46.7 million from the previous quarter.
The allowance for credit losses was $7.1 million, or 1.24% of total loans, compared to $7.2 million, or 1.27% of total loans, in the previous quarter, while noninterest income remained steady at $0.9 million for both of the first two quarters of 2024.
AUBN shares currently yield 5.2%.
Patterson Companies
Patterson Companies PDCO traces its history back to 1877 in the dental market. The company entered the animal health market with the 2001 purchase of Webster Veterinary. Patterson acquired Animal Health International, Inc. in 2015 and Miller Vet Holdings in 2021.
Today the company is a large Dental and Animal Health distributor and wholesaler selling dental and animal health products, equipment, devices, office management products, and services. The Dental segment operates in the U.S. and Canada, while the Animal Health segment operates in North America and the U.K. In fiscal year 2024, total sales were $6.5 billion with ~62% coming from Animal Health and ~38% from Dental.
Patterson reported Q1 FY 2025 on August 28. For the quarter, revenue declined 2.2% while diluted GAAP earnings per share declined to $0.15 from $0.32 on a year-over-year basis. On an adjusted basis, earnings per share decreased to $0.24 from $0.40. Of note, gross profit margins fell -50 bps to 20.1% and operating margins decreased 110 bps to 2.3%.
Patterson is being affected by higher inflation and interest rates. However, the company has raised prices, managed costs, and introduced new products to counter negative trends. Patterson maintained guidance for adjusted earnings per share of $2.33 to $2.43 in fiscal 2025.
We now believe that diluted earnings per share will increase on average about 2.0% annually out to FY 2030. We now forecast on average a 0.5% annual reduction in share count. The company consistently raised the dividend in the past, but there has been no increase since fiscal year 2019. We are not forecasting any dividend increases over the next few years.
Patterson Companies is a major dental supply provider along with Henry Schein and Benco, who together control about 85% of the market. Patterson has about 30% of the market and this scale should theoretically provide a competitive advantage. But with strong competitors, several regional competitors, and online competitors for consumables there is little pricing power.
The animal health market has also proven difficult in the past with little in the way of organic growth. Henry Schein acknowledged the challenges in this market by conducting an IPO for its animal health division. Furthermore, there is likely little revenue and cost synergies between the dental health and animal health businesses.
PDCO currently yields 5.0%.
At the time of publication, Ciura had no positions in any stocks mentioned.