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I have searched for very profitable stocks that pay solid dividends with a low payout ratio that have raised their payouts at a significant rate for the last three and five years. Those stocks would also have to show a low debt and a low PEG ratio.

I used the Portfolio123's powerful screener to perform the search. The screen's formula requires all stocks to comply with all following demands:

  1. The stock does not trade over-the-counter (OTC).
  2. Dividend yield is greater than 2%.
  3. The payout ratio is less than 75%.
  4. Forward P/E is less than 15.
  5. The PEG ratio is less than 1.50.
  6. Total debt to equity is less than 0.40.
  7. The twenty stocks with the lowest payout ratio among all the stocks that complied with the first six demands.

As a result, twenty stocks came out, as shown in the charts below (the number of stocks left after each demand can be seen in the chart). In this article, I describe the three stocks with the lowest payout ratio among the twenty stocks. In my opinion, these stocks can reward an investor a capital gain along with a nice growing income. I recommend readers use this list of stocks as a basis for further research. All the data for this article were taken from Portfolio123 and finviz.com, on October 19.

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Valero Energy Corporation (NYSE:VLO)

Valero Energy Corporation operates as an independent petroleum refining and marketing company.

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Source: company presentation

Valero Energy Corporation has a low debt (total debt to equity is 0.37), and it has a very low trailing P/E of 7.77 and a very low forward P/E of 8.46. The price-to-sales ratio is very low at 0.16, and the price to free cash flow is also very low at 10.04. The average annual earnings growth estimates for the next five years is at 3.63%. The forward annual dividend yield is at 2.34%, and the payout ratio is only 14.8%. The annual rate of dividend growth over the past three years was at 70.4% and over the past five years was at 10.4%.

The VLO stock price is 11.74% above its 20-day simple moving average, 10.11% above its 50-day simple moving average and 5.56% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

Valero Energy Corporation has recorded strong revenue and EPS growth during the last three years, as shown in the table below.

Source: Portfolio123

Valero Energy's stock valuation has been much better than its industry median, sector median and the S&P 500 median, as shown in the table below.

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Source: Portfolio123

The charts below emphasize the advantage of North American refiners due to the local growth of oil and natural gas production.

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Valero is returning more cash to stockholders, as shown in the chart below.

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Valero Energy will report its latest quarterly financial results on October 29. VLO is expected to post a profit of $0.50 a share, a $1.40 decline from the company's actual earnings for the same quarter a year ago. Although next quarter EPS estimates are much lower than a year ago, EPS estimates for the current year are at $3.27 and are at $4.40 for 2014, which correspond to P/E ratios of 11.96 for the year 2013 and 8.89 for the year 2014, by all means, remarkably low P/E ratios.

Valero Energy has compelling valuation metrics and considering the fact that the stock is in an uptrend, VLO stock still has room to go up. Furthermore, the rich growing dividend represents a nice income.

Risks to the expected capital gain and to the dividend payment include; a downturn in the U.S. economy and lower refining margins.

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Chart: finviz.com

HCC Insurance Holdings Inc. (NYSE:HCC)

HCC Insurance Holdings, Inc. underwrites non-correlated specialty insurance products worldwide.

HCC Insurance has a very low debt (total debt to equity is only 0.18), and it has a very low trailing P/E of 10.97 and a very low forward P/E of 12.14. The price to free cash flow for the trailing 12 months is very low at 9.68, and the average annual earnings growth estimates for the next five years is at 7.75%. The forward annual dividend yield is at 2.03%, and the payout ratio is only 16%. The annual rate of dividend growth over the past three years was at 15.8% and over the past five years was at 12.5%.

The HCC stock price is 1.65% above its 20-day simple moving average, 2.28% above its 50-day simple moving average and 5.75% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

HCC Insurance has recorded solid revenue, EPS and dividend growth during the last year, the last three years and the last five years, as shown in the table below.

HCC Insurance's margins and return on capital have been much better than its industry median, sector median and the S&P 500 median, as shown in the tables below.

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Most of HCC Insurance's stock valuation parameters have been better than its industry median, sector median and the S&P 500 median, as shown in the table below.

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HCC Insurance Holdings will report its latest quarterly financial results on October 29. HCC is expected to post a profit of $0.82 a share, a $0.29 decline from the company's actual earnings for the same quarter a year ago. Although next quarter EPS estimates are lower than a year ago, EPS estimates for the current year are at $3.50 and are at $3.66 for 2014, which correspond to P/E ratios of 12.67 for the year 2013 and 12.11 for the year 2014, which are low P/E ratios.

HCC Insurance has recorded solid revenue, EPS and dividend growth, and considering its cheap valuation metrics and its good earnings growth prospects, HCC stock still has room to go up. Furthermore, the solid growing dividend represents a nice income.

Risks to the expected capital gain and to the dividend payment include a downturn in the U.S. economy and large catastrophe losses.

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Chart: finviz.com

AFLAC Inc (NYSE:AFL)

Aflac Incorporated, through its subsidiary, American Family Life Assurance Company of Columbus, provides supplemental health and life insurance products.

Aflac Incorporated has a low debt (total debt to equity is only 0.36), and it has a very low trailing P/E of 9.14 and a very low forward P/E of 10.14. The price to free cash flow for the trailing 12 months is extremely low at 2.39, and the average annual earnings growth estimates for the next five years is at 5.75%. The forward annual dividend yield is at 2.12%, and the payout ratio is only 18.4%. The annual rate of dividend growth over the past three years was at 7.7% and over the past five years was at 7.8%.

The AFL stock price is 4.04% above its 20-day simple moving average, 7.17% above its 50-day simple moving average and 18.67% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

Aflac has recorded strong revenue, EPS and dividend growth, during the last year, the last three years and the last five years, as shown in the table below.

Aflac's margins and return on capital have been much better than its industry median, sector median and the S&P 500 median, as shown in the tables below.

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Most of Aflac's stock valuation parameters have been better than its industry median, sector median and the S&P 500 median, as shown in the table below.

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Aflac will report its latest quarterly financial results on October 29. AFL is expected to post a profit of $1.48 a share, a $0.29 decline from the company's actual earnings for the same quarter a year ago. Although next quarter EPS estimates are lower than a year ago, EPS estimates for the current year are at $6.20 and are at $6.52 for 2014, which correspond to P/E ratios of 10.61 for the year 2013 and 10.09 for the year 2014, which are very low P/E ratios.

Aflac has recorded very strong revenue, EPS and dividend growth, and considering its compelling valuation metrics and its solid earnings growth prospects, AFL stock can move higher. Furthermore, the rich growing dividend represents a nice income.

Since a significant portion of Aflac's business is in Japan, where the functional currency is the yen, the impact from translating yen into dollars might reduce Aflac's operating earnings, in case of decrease in the exchange rate of the yen.

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Chart: finviz.com

Source: 3 Compelling Dividend Growers With Very Low P/E Ratios Currently In An Uptrend