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The payout ratio, or the ratio of dividends to earnings, expresses how much of earnings a company decides to pay to shareholders in the form of dividends. Very high payout ratios are considered unsustainable. When a company increases its dividend while the payout ratio falls, it is an especially good sign because it implies that earnings are increasing and dividends are increasing, while dividend sustainability is not compromised.

We ran a screen on oversold dividend stocks for those exhibiting these two trends: a rise in dividends, comparing the current year dividend per share estimate to last year’s dividend per share, while also seeing a decrease in the payout ratio over the same period.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.




We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.



List sorted by dividend yield.

1. KLA-Tencor Corporation (NASDAQ:KLAC): Semiconductor Equipment & Materials Industry. Market cap of $6.08B. RSI(14) at 36.70. Dividend yield at 3.87%, payout ratio at 21.07%. Current year dividend per share estimate at $1.18 vs. last year dividend per share at $1.00. TTM payout ratio at 21.07% vs. 3-year average at 123.74%. It's been a rough couple of days for the stock, losing 5.66% over the last week.

2. Prudential plc (NYSE:PUK): Life Insurance Industry. Market cap of $25.85B. RSI(14) at 35.17. Dividend yield at 3.80%, payout ratio at 34.70%. Current year dividend per share estimate at $0.82 vs. last year dividend per share at $0.77. TTM payout ratio at 34.70% vs. 3-year average at 71.88%. Might be undervalued at current levels, with a PEG ratio at 0.94, and P/FCF ratio at 6.87. The stock has gained 13.67% over the last year.

3. Packaging Corp. of America (NYSE:PKG): Packaging & Containers Industry. Market cap of $2.29B. RSI(14) at 27.34. Dividend yield at 3.54%, payout ratio at 31.76%. Current year dividend per share estimate at $0.78 vs. last year dividend per share at $0.60. TTM payout ratio at 31.76% vs. 3-year average at 40.45%. It's been a rough couple of days for the stock, losing 12.65% over the last week.

4. MKS Instruments Inc. (NASDAQ:MKSI): Diversified Machinery Industry. Market cap of $1.18B. RSI(14) at 36.52. Dividend yield at 2.66%, payout ratio at 10.63%. Current year dividend per share estimate at $0.60 vs. last year dividend per share at $0.00. TTM payout ratio at 10.63% vs. 3-year average at 23.42%. It's been a rough couple of days for the stock, losing 8.34% over the last week.

5. Magna International, Inc. (NYSE:MGA): Auto Parts Industry. Market cap of $9.52B. RSI(14) at 33.18. Dividend yield at 2.54%, payout ratio at 15.21%. Current year dividend per share estimate at $0.93 vs. last year dividend per share at $0.42. TTM payout ratio at 15.21% vs. 3-year average at 58.03%. Might be undervalued at current levels, with a PEG ratio at 0.83, and P/FCF ratio at 12.54. It's been a rough couple of days for the stock, losing 13.67% over the last week.

6. Tyco International Ltd. (NYSE:TYC): Diversified Machinery Industry. Market cap of $18.57B. RSI(14) at 30.50. Dividend yield at 2.50%, payout ratio at 30.50%. Current year dividend per share estimate at $0.98 vs. last year dividend per share at $0.86. TTM payout ratio at 30.50% vs. 3-year average at 249.82%. It's been a rough couple of days for the stock, losing 6.39% over the last week.

7. Commerce Bancshares Inc. (NASDAQ:CBSH): Regional Banks Industry. Market cap of $3.29B. RSI(14) at 26.12. Dividend yield at 2.44%, payout ratio at 32.20%. Current year dividend per share estimate at $0.93 vs. last year dividend per share at $0.89. TTM payout ratio at 32.20% vs. 3-year average at 39.39%. It's been a rough couple of days for the stock, losing 6.24% over the last week.

8. Principal Financial Group Inc. (NYSE:PFG): Asset Management Industry. Market cap of $7.58B. RSI(14) at 31.53. Dividend yield at 2.28%, payout ratio at 22.14%. Current year dividend per share estimate at $0.59 vs. last year dividend per share at $0.55. TTM payout ratio at 22.14% vs. 3-year average at 28.01%. This is a risky stock that is significantly more volatile than the overall market (beta = 2.86). Might be undervalued at current levels, with a PEG ratio at 0.82, and P/FCF ratio at 2.66. It's been a rough couple of days for the stock, losing 11.92% over the last week.

Dividend and payout data sourced from Screener.co, all other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 8 Oversold Stocks With Rising Dividends and Falling Payout Ratios