Digging for buried treasure

5 mid-cap companies worthy of further research

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published January 7, 2013 9:27 am AEDT

These mid-sized companies have great dividend paying records, and could be just the ticket for your retirement portfolio.

The economy's still shaky. Investors are scared. Despite last year's ongoing concerns over European sovereign debt issues, 'fiscal cliff' issues in the US and worries over China's slowing growth, the Australian stock market still managed to rise by 13.4% in 2012.

Nevertheless, there are still opportunities that smart investors can take advantage of. Even though they may not be glamorous, they're the most likely candidates to get your portfolio ready for your retirement, or any other long-term financial goal you have.

Ding the bling

You're unlikely to find the best shares to save your retirement on the list of top gaining shares over the past few months. Sure, companies like CSL Limited (ASX: CSL) and Cochlear Limited (ASX: COH) have seen strong advances in the last six months, but they both now trade at lofty valuations. You'd think the big money has already been made on those shares.

Nor should you automatically look for shares that have dropped enough to land in what seems to be the bargain basement. APN News and Media Limited (ASX: APN) and Iluka Resources Limited (ASX: ILU) might look more attractive to value hunters, but these companies are just as likely to fail completely as to shoot to the sky. Why take the risk?

Both of these sets of companies have received a lot of attention from investors looking for tomorrow's best shares. But time and time again, history has shown that the best shares for the future usually come straight from left field, where no one expects to see them.

Finding buried treasure

A lot of people — ourselves included — have been recommending big blue-chip dividend payers for those who are concerned about the market in the year ahead. There's a lot of merit to that, as some of the best known names in the market are also among those with the healthiest balance sheets and the most stable prospects going forward.

Consumer staples giant Woolworths Limited (ASX: WOW) isn't going to hit any home runs even by going abroad to cultivate new markets, but for solid growth and stable dividends going forward, you'll have to look hard to find a better choice.

To give you some more ideas to think about, we've turned to mid-sized companies trading at reasonable multiples to earnings. We also wanted to focus on companies that paid dividends, that weren't too large, and weren't so widely followed that everyone already knew about them. Here are some of the shares we came up with:

K & S Corporation Limited (ASX: KSC)

Currently trading on a forecast P/E of around 8.6, and paying a dividend yield of over 6%, K&S is engaged in transport and logistics, contract management, warehousing and distribution across Australia and New Zealand.

Collins Foods Limited (ASX: CKF)

The operator of KFC restaurants in Queensland and 2 in NSW, the owner of the Sizzler trademarks in Australia and over 68 countries, as well as the franchisor for more than 59 Sizzler restaurants located throughout Asia. Collins is currently trading on a trailing P/E ratio of around 9 times, and paying a dividend yield of over 5%.

MacPherson's Limited (ASX: MCP)

The marketer of personal care, house wares and household consumable products in Australasia, Macpherson's is currently trading on a prospective P/E of 6.5, and paying a dividend yield of around 7.7%.

STW Communications (ASX: SGN)

STW Comms owns a host of advertising, media and diversified communications operations, and is currently trading on a forecast P/E ratio of around 9 and paying a 7.5% dividend.

Cedar Woods Properties (ASX: CWP)

Currently trades on a prospective P/E ratio of around 9 and pays a 5.4% dividend yield. Cedar Woods is involved in property development in Western Australia and Victoria, and has been growing earnings despite the weak construction market.

All five companies appear reasonably priced without being red-light specials. In fact, most of them have largely avoided the gaze of investors entirely — you could even call them boring.

Unobtrusive companies like these won't show up on many investors' radar screens, but that only makes them more attractive for the Fools disciplined enough to dig for them, and are worthy of further research.

Get on the road to retirement

Right now, it's just as important to preserve your capital as it is to make it grow. Fortunately, though, you don't have to choose between one or the other. With the right shares, you can both protect your portfolio and set yourself up for good-sized gains during the next bull market.

If you only invest in one company this year, make it our "Top Stock for 2012-13." Operating in two hot markets — one set to double by 2012, the other predicted to grow 5x over the next five years — this stock is a solid growth play that also boasts strong recurring revenue, zero debt, and lots of cash. Get its name and full research case in this brand-new FREE report.

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Motley Fool writer/analyst Mike King owns shares in CSL, Cochlear and Woolworths. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

A version of this article originally appeared on Fool.com. It has been updated by Mike King.

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