By Lawrence C. Strauss

Mid-cap stocks don't always get much respect for their dividends, especially compared with larger-cap blue-chips like Procter & Gamble or Coca-Cola.

Those in the latter group are well established, allowing them to return plenty of capital to shareholders. Many mid-cap companies need to plow capital into growing their businesses. Still, income investors shouldn't write off this part of the market.

Ben Snider, senior strategist on the U.S. portfolio strategy macro team at Goldman Sachs, points out that "smaller companies have historically grown more quickly than larger, more mature companies."

That can lay the foundation for attractive dividends, though investors need to be careful, says Brian Bollinger, president of Simply Safe Dividends, which offers online tools for customers to keep tabs on their dividend holdings. "The perception is typically that this space has lower yields but more growth," he says. "But a lot of that income is not as safe as it is in large-caps." Bollinger points to highly leveraged real estate investment trusts or business development companies as examples of that risk.

Another consideration is that mid-caps have lagged behind larger-cap names, especially in recent years. A handful of large-cap stocks, most notably the Magnificent Seven, have until recently had a huge impact on the S&P 500 index's performance.

As of April 14, the S&P MidCap 400 index had a five-year annual return of 13.6%, versus 15.2% for the S&P 500, according to FactSet. Those disparities are much more pronounced over more recent periods. Over the past 12 months, the S&P 500 has returned about 7%, compared with minus 3.5% for mid-caps.

Mid-caps do hold a slight edge over large-caps based on 30-year annual results, roughly 11% to 10%.

Another reason for that more recent underperformance is that the mid-cap index is more tied to cyclical sectors such as industrials, financials, and consumer discretionary stocks. "If the market is concerned about an economic slowdown, there's risk here," Snider says.

The mid-cap index's valuation, however, is compelling. It recently traded at about 13 earnings forward earnings, versus 18 times for the S&P 500, according to Goldman.

"Much lower valuations, all else equal, would signal better prospective returns," says Snider.

Old Republic International, which yields 3%, sports a market cap of about $9 billion. The company paid a special dividend of $2 a share in January.

The specialty insurer in February said it would boost its annual dividend to $1.16 a share, up more than 9% from $1.06. It marked the 44th straight year that the company has hiked its regular dividend. Its business lines include title insurance and property and casualty protection.

"They've just done a great job managing risk, and they're able to keep growing those premiums each year and slowly expand into niche markets," says Bollinger.

Another mid-cap is Exponent, an engineering and scientific consulting firm. The stock, with a market cap of about $4 billion, yields 1.5%. "Problem-solving never gets old," says Bollinger, adding that the company's expertise includes biomechanics and environmental matters. Exponent earlier this year declared a quarterly disbursement of 30 cents a share, up 7% and marking the 12th straight year of dividend increases.

Elsewhere, American States Water, which yields about 2.4%, oversees water and electric utilities. It also operates water systems on military bases. It has paid a dividend every year since 1931 and has paid out a higher dividend every calendar year for 70 straight years. The company is a Dividend King, whose members have boosted their dividends for at least 50 straight years.

Mid-cap dividends aren't always that regal, but they are certainly worthy of consideration.

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April 18, 2025 21:30 ET (01:30 GMT)

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