These three mid cap stocks pay large dividends. Top mutual funds love them.

In a market where investors traditionally turn to large cap stocks for reliable dividends, three mid caps are breaking through with substantial yields, offering a blend of income and growth potential. Mutual funds are increasingly eyeing these under-the-radar stocks for their solid dividend payouts and promising upside, signalling a shift in investor interest.

These mid cap companies showcase a rare combination of growth potential and financial discipline, offering dividend yields that often surpass those of many blue-chip stocks.

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Their dividends are backed by solid numbers on growth and sustainability, which is probably why they’ve caught the eye of fund managers.

Here are the three stocks in question.

Gujarat Pipavav Port Ltd

Gujarat Pipavav Port, India’s first private sector port, is strategically located on the southwest coast of Gujarat near Bhavnagar. Positioned along a vital international maritime route, it connects India with major regions such as the US, Europe, Africa, the Middle East and the Far East.

With a market cap of ₹8,856 crore and a dividend yield of 3.99%, Gujarat Pipavav Port Ltd is a strong candidate for dividend-focused investors seeking both stable income and growth potential.

Noteworthy investments from mutual funds are as follows:

• HDFC Capital Builder Value Fund: 7.86% (down from 8.34% in the last quarter)
• ICICI Prudential Business Cycle Fund: 3.41% (up from 3.36% in the last quarter)
• Tata Infrastructure Fund: 2.98% (down from 3.04% in the last quarter)

The company’s board recently approved capital expenditure of $90 million for a part of its expansion. The company also holds 39% share in Pipavav Railway Corporation Limited (PRCL).

Sales grew at a compounded rate of 7% in the last five years from ₹702 crore to ₹988 crore. Profit after tax (PAT) grew from ₹206 crore in FY19 to ₹354 crore in FY24, at a compound annual rate of 14%.

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The company also boasts of the highest return on capital employed (ROCE) of 24.8% when compared to industry peers such as Adani Ports (12.9%) and JSW Infrastructure (16.4%). It has been using these returns to give back to shareholders, with a dividend payout of almost 100%.

Ebitda was ₹389 crore in FY19 and grew to ₹574 crore in FY24 at a compound annual rate of 8%.

The current share price is ₹183 which is a 118% jump from ₹84 five years ago.

The stock is trading at a price-to-earnings ratio of 21.8, the lowest in the industry. The industry average is 28.76. The company’s 10-year median PE ratio is 24.3x.

Gujarat Pipavav Port Ltd has been ranked amongst top 50 efficient ports globally for the third consecutive year by the World Bank and S&P Global Market Intelligence on the Global Port Performance Index (GPPI).

The company has big plans to ensure its operation are in line with the government’s green energy initiatives. It already meets 45% of its energy requirements through green sources.

Redington Ltd

Redington Ltd is a leading distributor of technology and mobility products, and a provider of supply chain management solutions and support services in India, the Middle East, Turkey and Africa.

With a market cap of ₹14,921 crore and a current dividend yield of 3.25%, it secures a spot on our list today.

Top mutual funds that have invested in the company are:

HDFC Midcap Opportunities Fund: 9.24% (up from 9.12% in the last quarter)

Tata Smallcap Fund: 1.90% (down from 2.41% in the last quarter)

Redington operates in 31 countries, serving 40 markets, and holds the first or second position across all regions.

The company’s sales grew from ₹46,536 crore in FY19 to ₹89,346 crore in FY24, at a compound annual rate of 14%. PAT was ₹484 crore in FY19 and grew at a compound annual rate of 18% over five years to ₹1,239 crore in FY24. Its ROCE is 19.5% and it has maintained a healthy dividend payout of 40%. Ebitda grew at a compound annual rate of 16% from ₹966 crore in FY19 to ₹2,009 crore in FY24.

The share price has increased from ₹57 to ₹191 – or 235% – in five years.

The stock is trading at a PE ratio of 12.8, the lowest among its peers. The current industry average is 37.4x. The 10-year median PE ratio of the company is 10x.

The company saw some major changes recently with managing director Rajiv Srivasrava resigning and V S Hariharan being appointed as the group CEO in September 2023.

Redington has announced a strategic partnership with Zoho Corporation to expand access to Zoho’s cloud solutions for office productivity, team collaboration and customer engagement, to reach more customers across India.

HeidelbergCement India Ltd

HeidelbergCement India Ltd, the Indian subsidiary of Germany’s HeidelbergCement Group, is a prominent player in the Indian cement industry.

With a market cap of ₹5,188 crore and an attractive dividend yield of 3.49%, it is increasingly catching the attention of income-focused investors.

Known for its solid financials and consistent performance, the company is well-positioned to benefit from India’s growing infrastructure demands.

The top mutual funds that have invested in the company are:

ICICI Prudential Smallcap Fund: 3.42% (fresh investment)

Axis Value Fund: 2.22% (invested since 2020)

SBI Mutual Fund: 1.94% (fresh investment)

Specialising in 100% blended cement, the company operates plants in Central India (Damoh, Madhya Pradesh; Jhansi, Uttar Pradesh) and South India (Ammasandra, Karnataka), selling under the MyCem and MyCem Power brands.

Sales have risen modestly from ₹2,133 crore in FY19 to ₹2,366 crore in FY24, reflecting a compound annual growth rate of 2.1%.

However, profits have declined 24% from ₹221 crore to ₹168 crore during this period. Despite this, the company maintains a healthy ROCE of 16.07%, outperforming the industry average of 13.07%.

The company has surprisingly been maintaining a healthy dividend payout of 116%.

For more such analysis, read Profit Pulse.

Ebitda has experienced a significant decline over the past five years, dropping 34% from ₹483 crore in FY19 to ₹317 crore in FY24. This highlights the challenges the company has faced in maintaining profitability during this period.

The share price has grown 20% in five years, from ₹190 to ₹229.

The stock currently trades at a PE ratio 39.2, while the current industry average is 39. The 10-year median PE ratio of the company is 24.7.

The markets are also buzzing with the news that parent company Heidelberg Materials AG wanting to sell its stake of 69.4% in the company. According to media reports, JSW Group’s cement division and Dalmia Bharat Group are in the race.

Mid cap marvels or mishaps?

Companies in the Nifty Midcap 150 index have experienced significant growth in recent years. Accordingly to media reports, between June 2019 and June 2024, their combined profit after tax surged by 207% to ₹2.05 trillion, and market capitalisation doubled to ₹82.5 trillion. 

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This period has also seen significant diversification with more than 240 meaningful IPOs, collectively exceeding $1 billion in market capitalisation, according to a report by Mirae Asset.

Rising interest from domestic institutional investors, particularly mutual funds, signals that individual investors may want to pay closer attention to these mid cap stocks. 

Note: We have relied on data from Screener.in and Trendlyne.com throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.

The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only. 

Suhel Khan has been a passionate follower of the markets for over a decade. During this period, he was an integral part of a leading equity research organisation based in Mumbai as its head of sales & marketing. Presently, he spends most of his time dissecting the investments and strategies of the super investors of India.

Disclosure: The writer and his dependants do not hold the stocks discussed in this article.