3 Under-the-Radar High Dividend Stocks Yielding More Than 4%
Income investors looking to go off the beaten path should consider these relatively uncovered names.
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The average dividend yield in the S&P 500 Index remains low at around 1.3%. 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.
These three stocks are relatively uncovered in their sectors, have dividend yields above 4% and secure dividend payouts.
Furnish Your Portfolio With This High-Yielding Name
Ethan Allen Interiors ETD is a prominent American furniture company renowned for its classic and contemporary home furnishings and interior design services.
Established in 1932, the company operates a network of design centers across the United States, Canada, and a few international locations. Its product line spans furniture, upholstery, accessories, and custom window treatments.
The company emphasizes a vertically integrated business model, which includes in-house design, manufacturing, and retail distribution. This approach allows Ethan Allen to maintain strict quality control while generating higher operating margins.
In the fiscal 2024 third quarter, Ethan Allen reported consolidated net sales of $146.4 million, marking a 21.4% decrease from the previous year. Despite the top-line decline, consolidated gross margin improved by 140 basis points to 61.3%, attributed to a change in sales mix, lower manufacturing input costs, and reduced headcount.
We expect the company to return to earnings growth in the next year. In the meantime, ETD has a strong balance sheet, which provides a margin of safety. ETD ended the most recent quarter with $181.1 million in cash and investments, maintaining a debt-free position.
ETD currently pays an annual dividend of $1.56 per share. Given Ethan Allen's outlook for 2024, EPS is expected to be $2.80. As a result, the company is expected to pay out roughly 56% of its EPS to shareholders in dividends. The dividend appears sustainable with this payout ratio.
ETD stock currently yields 5.4%.
This Dividend Payer Is Fully 'Vetted'
Patterson Companies, Inc. 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 FY 2024, total sales were $6.5B with ~62% coming from Animal Health and ~38% from Dental.
Patterson reported Q4 FY 2024 and fiscal year results on June 18. For the quarter, revenue increased 0.1% to $1.72 billion while diluted GAAP earnings per share declined to $0.74 from $0.77 on a year-over-year basis. On an adjusted basis, earnings per share decreased to $0.82 from $0.84. Of note, gross profit margins fell -110 bps to 21.5% and operating margins decreased 100 bps to 5.1%.
The Animal Health segment sales increased 3.1% to $1.06 billion in comparable periods because of rising consumable and services sales, offset by equipment. The Dental Health segment sales decreased 3.8% to $657.8 million, driven by consumables, offset by a decline in equipment and services. The cybersecurity attack on Change Healthcare affected dental sales.
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 set guidance for adjusted earnings per share of $2.33 to $2.43 in fiscal 2025.
We believe that diluted earnings per share will increase on average about 4.0% annually out to FY 2030. We now forecast on average a 0.5% annual reduction in share count. 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 provide a competitive advantage.
PDCO stock currently yields 4.3%.
Industrial Strength Dividends
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 July, MSM reported its 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.
Acquisitions will be a major driver of MSM’s future growth. For example, in 2023 MSC Industrial acquired Buckeye Industrial Supply Co, an independent metalworking distributor, as well as Tru-Edge Grinding, a custom tool manufacturer. 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.
On October 11, 2023, MSM increased its quarterly dividend by 5% to $0.83 per share.
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. It is true that Amazon AMZN is a formidable threat, but thus far MSM has been able to ward off attacks through its niche market relationships. MSM has a secure dividend with a 2024 dividend payout ratio of 57%.
MSM stock currently yields 4.3%.
At the time of publication, Ciura had positions in any stocks mentioned.