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The payout ratio is the percentage of a company's earnings paid out to investors as cash dividends. The lower is the payout ratio, the more secure is the dividend because smaller dividends are easier to pay out than larger dividends.

I have searched for very profitable growth companies that pay rich dividends and have a low payout ratio, this kind of stock offers limited downside and provides a very nice income.

I have elaborated a screening method, which shows stock candidates following these lines. Nonetheless, the screening method should only serve as a basis for further research.

The screen's formula requires all stocks to comply with all following demands:

  1. The stock is included in one of the following indexes: S&P 500, S&P 400 MidCap or S&P 600 SmallCap (American stocks).
  2. Dividend yield is greater than 3.0%.
  3. Annual rate of dividend growth over the past five years is greater than 10%.
  4. The payout ratio is less 50%.
  5. Earnings growth estimates for the next 5 years (per annum) is greater than 10%.
  6. The forward P/E is less than 13.
  7. The PEG ratio is less than 1.40.

I used Portfolio123's powerful free screener to perform the search. After running this screen on November 14, 2012, before the market open, I obtained as results the 6 following stocks:

click to enlarge images

Data: Finviz.com

Ameriprise Financial Inc. (NYSE:AMP)

Ameriprise Financial Inc., through its subsidiaries, provides a range of financial products and services in the United States and internationally.

Ameriprise Financial has a very low forward P/E of 8.82 and a PEG ratio of 1.34. The price to free cash flow for the trailing 12 months is very low at 10.96 and the average annual earnings growth estimates for the next 5 years is 11.72%. The forward annual dividend yield is quite high at 3.07% and the payout ratio is 48.1%. On October 24, Ameriprise Financial reported its 3Q financial results. On that occasion, the company said that it authorized a new $2 billion share repurchase program as it accelerated its buybacks over the past two years. The AMP stock looks quite attractive.

Chart: Finviz.com

BlackRock, Inc. (NYSE:BLK)

BlackRock, Inc. is a publicly owned investment manager. The firm primarily provides its services to institutional, intermediary, and individual investors.

BlackRock has a low trailing P/E of 14.57 and a low forward P/E of 12.56, the PEG ratio is 1.15. The average annual earnings growth estimates for the next 5 years is 12.67%. The forward annual dividend yield is quite high at 3.19% and the payout ratio is 46.4%. On October 17, BlackRock reported its 3Q financial results. BlackRock beat expectations on revenues and beat expectations on earnings per share. Compared to the prior-year quarter, revenue expanded and GAAP earnings per share increased. All these factors make the stock quite attractive.

Chart: Finviz.com

Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL)

Cracker Barrel Old Country Store, Inc. develops and operates the Cracker Barrel Old Country Store restaurant and retail concept in the United States.

Cracker Barrel has a low trailing P/E of 14.32 and a low forward P/E of 11.50, the PEG ratio is 1.39. The price to free cash flow for the trailing 12 months is very low at 12.78 and the average annual earnings growth estimates for the next 5 years is 10.33%. The forward annual dividend yield is quite high at 3.17% and the payout ratio is 45.5%. On September 19, the company reported its 4Q fiscal 2012 financial results. Cracker Barrel Old Country Store beat expectations on revenues and missed estimates on earnings per share. Compared to the prior-year quarter, revenue increased and GAAP earnings per share increased significantly, margins expanded across the board. The very low multiples and the very high dividend yield make the stock quite attractive.

Chart: Finviz.com

KLA-Tencor Corporation (NASDAQ:KLAC)

KLA-Tencor Corporation designs, manufactures, and markets process control and yield management solutions for the semiconductor and related nanoelectronics industries.

KLA-Tencor has a very low trailing P/E of 11.18 and a very low forward P/E of 11.49, the PEG ratio is 1.12. The price to free cash flow for the trailing 12 months is very low at 11.61 and the average annual earnings growth estimates for the next 5 years is 10%. The forward annual dividend yield is quite high at 3.47% and the payout ratio is only 38.8%. The company is trading 15.7% below its 52-week high and has 15% upside potential based on the consensus mean target price of $52.88. The very low multiples and the very high dividend yield make the stock quite attractive.

Chart: Finviz.com

Seagate Technology (NASDAQ:STX)

Seagate Technology designs, manufactures, markets, and sells hard disk drives for enterprise storage, client compute, and client non-compute market applications worldwide.

Seagate has an extremely low trailing P/E of 3.70 and an extremely low forward P/E of 4.98 and the PEG ratio is also very low at 0.30. The price to free cash flow for the trailing 12 months is very low at 3.37 and the price to sales is also very low at 0.66. The average annual earnings growth for the past 5 years has been very high at 33.07% and the average annual earnings growth estimates for the next 5 years is 12.33%. The forward annual dividend yield is very high at 4.58% and the payout ratio is very low at 17%. On October 31, Seagate reported its fiscal first Quarter 2013 financial results which were below estimates and the Non-GAAP gross margin was 29%, about a point below guidance. In the quarter, Seagate bought back 20.5 million shares for about $669 million. Although the results were disappointing, I think that a company which has 42% of the world's disk drives market share and is selling with such low multiples is a good investment.

Chart: Finviz.com

Walgreen Co. (NYSE:WAG)

Walgreen Co., together with its subsidiaries, operates a network of drugstores in the United States.

Walgreen has a low trailing P/E of 13.45 and a very low forward P/E of 8.92, the PEG ratio is also very low at 1.35. The price to free cash flow for the trailing 12 months is very low at 14.67 and the average annual earnings growth estimates for the next 5 years is 12.77%. The forward annual dividend yield is very high at 3.38% and the payout ratio is at 45.5%. All these factors make the stock quite attractive.

Chart: Finviz.com

Source: 6 High-Yield Dividend Growth Stocks With Low Payout, Low P/E