The other day I thought to myself, "What if a company had a higher dividend yield than its P/E ratio?" For my research I used the FinViz.com screener to find the following stocks with dividends greater than their P/Es. In addition, these names had to be financially stable and not in danger of cutting dividends due to a high payout ratio or a lack of earnings growth. Below is a list of criteria I used to aide in my search, along with the reasons why I chose to use each.
- Industry: Stocks Only (ex. Funds)
- Average Volume: Over 500K
I wanted to ensure that the stocks in the screen were liquid, so I chose to include stocks with only 500,000 shares of average volume.
- Return On Assets, Equity and Investment: Positive
I chose that criterion because companies with negative values in those categories are not as strong as companies with positive return percentages.
- EPS Growth This Year: Positive
I chose this because I wanted to include companies whose earnings are growing, which can help support a dividend.
- Sales Growth Q/Q: Positive
I chose positive sales growth because I wanted companies that had top-line growth as well as earnings growth.
- Forward P/E: Profitable
I chose this because the forward P/E is the ratio based on forecast earnings for the next year.
- P/E: Under 20
I saw that out of the companies remaining, the one with the highest dividend yield had a yield of 15.87%. So the next criterion I selected was a P/E ratio of under 20, since no dividend yield was greater than 20.
- Dividend Yield: Over 3%
I selected the dividend yield of over 3% because, out of the stocks remaining, the lowest P/E was 2.49.
- Assessment Of Screen, Part 1
At this point in the screen, there were 82 stocks that met the above criteria. So I wanted to make that list a bit smaller and easier to search for stocks with a yield greater than their P/E.
- Gross, Operating, And Profit Margin: Positive
I chose to include only companies with positive margins because I didn't want any that were selling products/services at a loss.
- Payout Ratio: Under 70%
This is the final screen criterion that I chose to include. I chose it because I only wanted companies that didn't have a high payout ratio and could be in danger of cutting dividends, or if the payout ratio is low enough the company could possibly raise its dividend.
After step 11 there were 55 stocks that met the above criteria, so I looked through the list and found three names that had a higher dividend yield than P/E ratio. Those companies are listed below, along with a short description of their businesses from Morningstar.com and P/E and dividend yields from the FinViz screener.
AstraZeneca was formed in 1999 by a merger between Astra of Sweden and Zeneca Group of the United Kingdom. The company sells branded pharmaceutical products across several major therapeutic classes, including gastrointestinal, cardiovascular, respiratory, cancer, neuroscience, and infectious disease. Just less than 40% of its sales are derived from the U.S. AstraZeneca has a P/E of 6.06 and a dividend yield of 6.33%.
Crexus Investment Corp. (CXS)
CreXus Investment is a finance company that acquires, manages, and finances -- directly or through its subsidiaries -- commercial mortgage loans and other commercial real estate debt, commercial mortgage-backed securities, and other commercial real estate-related assets. Crexus Investment has a P/E of 6.38 and a dividend yield of 10.71%.
Pioneer Southwest Energy Partners (PSE)
Pioneer Southwest Energy Partners is an upstream limited partnership that was formed by Pioneer Natural Resources to own and acquire oil and gas producing properties in west Texas and southeastern New Mexico. Initial assets acquired were interests in 1,100 oil and gas wells in the Spraberry field in the Permian Basin of west Texas. Daily production from these wells in 2008 averaged 4,811 barrels of oil equivalent, and year-end 2008 proven reserves were 22.6 million BOE. Pioneer Southwest Energy Partners has a P/E of 7.26 and a dividend yield of 7.53%.
The three companies that have dividend yields higher than their P/E ratios are all from different sectors, ranging from pharmaceuticals to real estate and energy. Also, what surprised me is that the average yield of the three stocks was 8.19%, which is about four times greater than that of the 10-year treasury yield at 2.05%.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: Please click here.