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Defensive investors like high dividend yielding stocks and consider them as viable options in especially inflationary environments. We expect high dividend stocks to outperform the 10-year treasuries over the next 10 years.

On the other hand, high dividend yields are not the only important criteria to be sought in defensive stocks. Defensive investors may also seek sustainable dividend payments from high dividend yielding stocks. Since high dividend yielding companies with lower dividend payout ratios are more likely to continue paying high dividends in future, we believe conservative investors like to pick such companies when seeking sustainability and inflation protection.

We compiled a list of large-cap US stocks with low dividend payout ratios and high current dividend yields. The market data are sourced from Fidelity. All companies in this list have market capitalizations above $15 billion, annualized dividend yields between 3% and 4% and EPS growth of at least 5% over the last five years.

Dividend Yield

Dividend Payout Ratio

YTD Return

Philip Morris International Inc.

(NYSE:PM)

3.88%

66.15%

14.93%

Sysco Corp.

(NYSE:SYY)

3.86%

52.53%

-5.80%

Heinz Co.

(NYSE:HNZ)

3.83%

62.34%

3.23%

Abbott Laboratories

(NYSE:ABT)

3.80%

46.04%

8.54%

Rogers Communications Inc.

(NYSE:RCI)

3.77%

47.97%

13.51%

Toronto Dominion Bank

(NYSE:TD)

3.68%

47.14%

3.20%

Du Pont

(NYSE:DD)

3.67%

49.55%

-8.28%

Blackrock Inc.

(NYSE:BLK)

3.64%

50.27%

-18.88%

Johnson & Johnson

(NYSE:JNJ)

3.58%

47.90%

5.61%

AFLAC Inc.

(NYSE:AFL)

3.50%

21.70%

-38.31%

PepsiCo Inc.

(NYSE:PEP)

3.40%

49.88%

-5.18%

Procter & Gamble Co.

(NYSE:PG)

3.39%

53.16%

-1.40%

Travelers Companies Inc.

(NYSE:TRV)

3.35%

26.20%

-10.25%

General Mills Inc.

(NYSE:GIS)

3.30%

49.19%

6.36%

Kellogg Co.

(NYSE:K)

3.28%

52.12%

5.05%

Chevron Corp.

(NYSE:CVX)

3.25%

33.30%

7.59%

General Dynamics Corp.

(NYSE:GD)

3.19%

27.57%

-15.31%

Time Warner Inc.

(NYSE:TWC)

3.10%

52.75%

-4.16%

Emerson Electric Co.

(NYSE:EMR)

3.09%

51.30%

-20.35%

JP Morgan Chase & Co

(NYSE:JPM)h

3.08%

25.25%

-22.44%

AVERAGE

-4.12%

All of the 20 large-cap S&P500 stocks in our list have dividend payout ratio of less than 70%. Since the beginning of this year, the average return of these 20 stocks was -4.12%. vs.-5.50% for the SPY. Nine stocks in this group had a gain year-to-date, whereas two stocks –PM and RCI – provided double digit returns in the same period.

Here are the top 10 US stocks with the highest dividend yields on our list:

1. Philip Morris International Inc.: PM is a large multinational company selling cigarettes worldwide. PM has a 3.88% dividend yield and returned 14.93% since the beginning of this year. The stock has a dividend payout ratio of 66.15%. PM has a market cap of $115.88B and P/E ratio of 15.13. Tom Russo holds more than $500 Million of PM (see Russo’s top stock picks here).

2. Sysco Corp.: SYY is a U.S. company operating in food services industry in the United States. SYY has a 3.86% dividend yield but lost -5.80% since the beginning of this year. The stock has a dividend payout ratio of 52.53%. SYY has a market cap of $15.99B and P/E ratio of 13.76. Jean-Marie Eveillard’s First Eagle holds more than $500 Million of SYY. Ric Dillon’s Diamond Hill is also among SYY investors.

3. Heinz Co.: HNZ is a US company providing food products worldwide. HNZ has a 3.83% dividend yield and returned 3.23% since the beginning of this year. The stock has a dividend payout ratio of 62.34%. HNZ has a market cap of $16.10B and P/E ratio of 16.66. Nelson Peltz’s Trian Partners had more than $100 Million in HNZ at the end of June 2011.

4. Abbott Laboratories: ABT is a leading healthcare company operating worldwide. ABT has a 3.80% dividend yield and returned 8.54% since the beginning of this year. The stock has a dividend payout ratio of 46.04%. ABT has a market cap of $78.73B and P/E ratio of 15.47. Ken Fisher holds nearly $500 million of ABT (check out Ken Fisher’s favorite stocks).

5. Rogers Communications Inc.: RCI is a large communications company providing cable TV, telephone and Internet services in Canada. RCI has a 3.77% dividend yield and returned 13.51% since the beginning of this year. The stock has a dividend payout ratio of 47.97%. RCI has a market cap of $16.56B and P/E ratio of 14.84. D.E.Shaw and Ray Dalio are prominent RCI investors.

6. Toronto Dominion Bank: TD is a large banking corporation operating mainly in Canada and United States. TD has a 3.68% dividend yield and returned 3.20% since the beginning of this year. The stock has a dividend payout ratio of 47.14%. TD has a market cap of $66.64B and P/E ratio of 12.91. Daniel Bubis’ Tetram Capital has the largest TD holding among the 300-plus funds we are tracking.

7. Du Pont: DD is an American company that provides a wide range of science-based products and related services worldwide. DD has a 3.67% dividend yield but lost -8.28% since the beginning of this year. The stock has a dividend payout ratio of 49.55%. DD has a market cap of $41.65B and P/E ratio of 12.37. Phil Gross is the most prominent DD investor, holding nearly $40 million of the stock.

8. Blackrock Inc.: BLK is a leading US investment management firm. BLK has a 3.64% dividend yield but lost -18.88% since the beginning of this year. The stock has a dividend payout ratio of 50.27%. BLK has a market cap of $27.08B and P/E ratio of 12.31. John Paulson, Jonathon Jacobson and Lee Ainslie hold large BLK positions in their portfolios.

9. Johnson & Johnson: JNJ is a large company that provides consumer healthcare and pharmaceutical products worldwide. JNJ has a 3.58% dividend yield and gained 5.61% since the beginning of this year. The stock has a dividend payout ratio of 47.90%. JNJ has a market cap of $174.31B and P/E ratio of 15.22. Warren Buffett is the most prominent JNJ investor with a $2.8 billion worth position (see Warren Buffett’s favorite stocks).

10. AFLAC Inc.: AFL is an American company providing supplemental insurance services. AFL has a 3.54% dividend yield but lost -38.31% since the beginning of this year. The stock has a dividend payout ratio of 21.70%. AFL has a market cap of $16.01B and P/E ratio of 8.97. Bill Miller had $120 Million in AFL at the end of June 2011 (see Miller’s other top stocks here).


Disclosure: I am long PM.

Source: 20 High Dividend Stocks With Low Payout Ratios