Federated Hermès, Hanover Insurance, and 3 Other Mid-Cap Stocks With Large Yields

For this screen, Barron’s started with the S&P MidCap 400, which sports an average yield of about 1.7%—in line with the
S&P 500.

Using FactSet data, Barron’s looked for stocks with dividend yields of at least 2% and debt-to-equity ratios below 50%. Our reasoning was that the less debt company has on its balance sheet, the better—especially amid concerns about a possible recession later this year.

What’s more, rising interest rates across the board have increased borrowing costs for some companies—a risk we wanted to avoid.

We also steered clear of mid-cap banks, owing to the ongoing volatility for many of those stocks.

That led us to five stocks:
HF Sinclair
(DINO),
Chord Energy
(CHRD),
Unum Group
(UNM),
Hanover Insurance Group
(
THG
), and Federated Hermès (FHI).

Federated Hermès, a Pittsburgh-based asset management firm, oversees about $700 billion of assets. The company is a big player in money-market funds, which have become a lot more popular as interest rates surged over the last year, thanks to the Federal Reserve.

Shares of Federated Hermès yield 2.7%. The stock has gained 14% this year through May 2, including dividends, no doubt reflecting investors’ growing appetite for these funds.

The 2023 FactSet consensus profit estimate for the asset manager is $3.37 a share, up from $2.65 in 2022, and $3.85 next year. That should help support continued dividend growth.

HF Sinclair, a refiner based in Dallas, yields 4.3%, the highest among these five stocks. A higher yield, of course, often means that the stock price has slipped. It is down about 19% this year, including dividends.

The independent energy company’s products include gasoline and diesel fuel.

The company earned $2.97 a share in the fourth quarter, below the consensus forecast. Still, the company generates a lot of cash. Operating cash flow last year was $3.8 billion, and it returned $1.6 billion to shareholders via dividends and buybacks.

In March,
Wells Fargo
upgraded to stock to Overweight, partly on what it saw as an attractive valuation.

Shares of Chord Energy have gained about 3% this year, including dividends. The Houston-based exploration and production company’s stock yields 3.7%.

Chord Energy is the product of a tie-up last year between Whiting Petroleum and Oasis Petroleum. The firm has considerable shale assets in North Dakota.

Another stock from this screen is Unum Group, whose businesses include life insurance. The stock, which yields 3%, has returned about 1% year to date.  

Analysts polled by FactSet expect Unum Group this year to earn $6.75 a share on a generally accepted accounting principles, or GAAP, basis versus $6.50 in 2022—and $7.20 next year.

That growth should help support the dividend, which the company has increased regularly in recent years, typically in July.

Last July, Unum Group, based in Chattanooga, Tenn., announced a quarterly dividend of 33 cents a share, up 10% from 30 cent.

Meanwhile, Hanover Insurance Group is expected to improve its reported earnings this year to $7.15 a share from $5.53 in 2022.

The property and casualty insurer, based in Worcester, Mass., has regularly boosted its dividend—most recently in December to 81 cents a share on a quarterly basis from 75 cents.

The company has said that it expects higher interest rates and cash flows “to provide a meaningful tailwind in 2023.”

The stock, which yields 2.7%, is down by about 13% this year, including dividends.

Write to Lawrence C. Strauss at lawrence.strauss@barrons.com