Research, such as Credit Suisse analysts Pankaj N. Patel, Souheang Yao and Heath Barefoot's paper “High Yield, Low Payout”, has indicated that the combination of a high dividend yield and a low payout ratio is better than high yield alone.
With that in mind, I screened for stocks in the S&P 1500 index with a payout ratios below the median of 43% and a dividend yield above 4%. Only four stocks met these criteria, of which I excluded Deluxe Corporation due to its high debt and its reduction of its dividend in the last five years.
Universal Corp. (NYSE:UVV)
Universal Corporation (Universal) is a leaf tobacco merchant and processor. Universal is a holding company that operates through numerous directly and indirectly owned subsidiaries. Universal’s primary subsidiary is Universal Leaf Tobacco Company, Incorporated. The largest portion of the Company’s business involves the procurement, processing, packing, and supply of flue-cured and burley leaf tobacco to manufacturers of consumer tobacco products. The segments for its flue-cured and burley tobacco operations are North America and Other Regions. It also has a third segment, Other Tobacco Operations, which consist of its dark tobacco business, its oriental tobacco joint venture and certain tobacco-related services. (see full description)
- Dividend Yield: 5.09%
- Payout Ratio: 37%
- 5 Yr. Dividend Growth Rate: 2.8%
- Total Debt to Equity: 69.21%
H&R Block, Inc. (NYSE:HRB)
H&R Block, Inc. (H&R Block) has subsidiaries that provide tax, banking, and business and consulting services. The Company’s Tax Services segment provides income tax return preparation, electronic filing and other services and products related to income tax return preparation to the general public primarily in the United States, and also in Canada and Australia. This segment also offers the H&R Block Prepaid Emerald MasterCard and Emerald Advance lines of credit through H&R Block Bank (HRB Bank), along with other retail banking services. (see full description)
- Dividend Yield: 4.68%
- Payout Ratio: 42%
- 5 Yr. Dividend Growth Rate: 6.89%
- Total Debt to Equity: 131.74%
Public Service Enterprise Group Inc. (NYSE:PEG)
Public Service Enterprise Group Incorporated (PSEG), incorporated in 1985, is a holding company that operates through three principal direct wholly owned subsidiaries: PSEG Power LLC (Power), Public Service Electric and Gas Company (PSE&G), and PSEG Energy Holdings LLC (Energy Holdings). PSEG is an energy company with a diversified business mix. PSEG’s operations are primarily in the Northeastern and Mid Atlantic United States. (see full description)
- Dividend Yield: 4.2%
- Payout Ratio: 42%
- 5 Yr. Dividend Growth Rate: 3.87%
- Total Debt to Equity: 96.86%
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.