3 Mid-Cap Dividend Stocks Yielding Up to 10.45%

A Sweet Spot for Income Investors?

In today’s market, the most well-known dividend payers tend to be large-cap stocks, such as Johnson & Johnson (NYSE:JNJ) and Procter & Gamble Co (NYSE:PG). This shouldn’t come as a surprise; if a company has become a household name and has achieved decades of consecutive dividend increases, chances are it has built an entrenched position in its operating market. Seeing the company’s large amount of revenue and profits, investors are willing to reward it with a sizable valuation, leading to its large-cap presence.

The thing is, though, large-cap stocks are not the only ones that deserve income investors’ attention. In particular, mid-cap stocks can provide solid dividends too.

Mid-cap stocks fall between large-cap and small-cap stocks. By definition, a mid-cap company has a market capitalization of between $2.0 billion and $10.0 billion.

In general, mid-cap companies are not as well known as the large-cap ones. However, their smaller size also means they could possess more growth potential.

You see, large-cap stocks have already established their positions. The Coca-Cola Co (NYSE:KO), for instance, sells its products in more than 200 countries. People around the world consume 1.9 billion servings of the company’s beverages every day. It’s an incredibly stable business, but, because the company is already near the maximum of its scale and scope, it would be difficult to find growth opportunities going forward.

Many mid-cap companies, on the other hand, are yet to reach their full potential. Some are trying to expand internationally, while others may be developing new lines of business. If a mid-cap company has found its competitive advantage, it can achieve substantial growth as it expands its operations.

Of course, by this logic, small-cap companies would offer even more growth potential because they tend to be at an even earlier growth stage. However, this also means they are the most risky. And because small-cap stocks tend to be the least established, they have to invest heavily to build their presence, so many of them don’t have the resources to pay a steady dividend.

In other words, mid-cap stocks can offer investors a balance of current income and future growth potential.

Now, let’s take a look at three mid-cap dividend stocks yielding up to 10.45%.

3 Mid-Cap Dividend Stocks

Aqua America Inc

To start off the list of mid-cap dividend stocks is Aqua America Inc (NYSE:WTR), a water and wastewater utility headquartered in Bryn Mawr, Pennsylvania. The company has a market cap of around $6.4 billion and is pursuing a “growth through acquisition” strategy. In the last 10 years, it has completed nearly 200 acquisitions and growth ventures. Aqua America currently serves approximately three million people in Pennsylvania, Ohio, North Carolina, Illinois, Texas, New Jersey, Indiana, and Virginia.

While Aqua America is a mid-cap company, it has a dividend increase track record that rivals some of the best large-cap stocks. The company has raised its dividend every year for the past 27 years, making it a “dividend aristocrat.” (Source: “Dividend History,” Aqua America Inc, last accessed November 17, 2017.)

Business has been growing too. In the third quarter of 2017, Aqua America signed an agreement to acquire a 3,800-connection municipal wastewater system. Year-to-date, acquisitions and organic customer growth have expanded the company’s customer base by approximately 0.8%. (Source: “Aqua America Reports Financial Results for Third Quarter,” Aqua America Inc, October 31, 2017.)

EPR Properties

EPR Properties (NYSE:EPR) is a real estate investment trust (REIT) headquartered in Kansas City, Missouri.

Nowadays, REITs usually specialize in specific types of properties, such as apartment complexes, office buildings, or industrial warehouses. EPR Properties is a bit different because it maintains a specialized orientation but diversifies across and within segments.

The company owns and operates three types of properties: entertainment, recreation, and education. As of September 30, 2017, EPR’s portfolio consists of 392 properties leased to over 250 tenants in 43 states; Washington, D.C.; and Canada. The occupancy rate stands at an impressive 99.2% at quarter end. (Source: “Investor Presentation – Third Quarter 2017,” EPR Properties, last accessed November 17, 2017.)

Real estate may not be the most exciting business, but EPR Properties managed to deliver enormous returns to investors over the years. The chart below shows the company’s dividend history since 2010:

EPR Properties Dividend History

(Source: “Dividends,” EPR Properties, last accessed November 17, 2017.)

In 2010, the company paid total dividends of $2.60 per share. This year, it is on track to pay $4.08 per share for an increase of 56.9%.

At the current price, the company offers a handsome annual yield of 6.02%.

Dividend growth is not the only thing this mid-cap stock has provided to investors over the years. In fact, from EPR’s initial public offering (IPO) in November 1997 to the end of September 2017, the company has delivered total shareholder returns of 1,492%, substantially outperforming both the MSCI U.S. REIT Index (462%) and the Russell 1000 Index (306%). (Source: EPR Properties, last accessed November 17, 2017, op cit.)

Prospect Capital Corporation

Among mid-cap dividend-paying stocks, Prospect Capital Corporation (NASDAQ:PSEC) stands out for a very simple reason: the sheer size of its payout.

The company makes monthly distributions of $0.06 per share, translating to a jaw-dropping yield of 10.45%.

You are probably wondering how Prospect Capital can afford such a generous dividend policy. The answer lies in its lending business. Structured as a business development company, Prospect Capital makes debt and equity investments in middle-market companies in the United States. As of September 30, 2017, approximately 68% of the company’s portfolio is invested in first-lien and second-lien loans. This allows Prospect Capital to earn a steady stream of interest income. (Source: “Prospect Capital Corporation,” Prospect Capital Corporation, last accessed November 17, 2017.)

While high-yield stocks are not known to have the greatest growth potential, there is actually a major catalyst for Prospect Capital: rising interest rates.

By the end of the third quarter, approximately 90.5% of the company’s interest-bearing assets were floating-rate, while nearly all of its liabilities were fixed-rate. Therefore, when the interest rate increases, Prospect Capital would earn higher interest income without incurring higher interest expenses. This would translate to higher net investment income to be distributed to investors.