Payout ratio is the percentage of earnings that a company pays out in dividends. Dividends from companies with low payout ratios are well-supported by earnings and can grow in two ways: increased earnings or increased payout ratio. The following five companies sport a dividend yield above 3% and payout ratios below 30%. I used 2011 figures to calculate payout ratios.
1) JPMorgan Chase (JPM): JPMorgan Chase is one of the largest financial institutions in the US. The stock recently took a dive over a $2 billion derivative-related loss. JPMorgan Chase currently has a 3.1% yield and a payout ratio of 22.3%.
2) General Dynamics (GD): General Dynamics is a manufacturer of ships, armored vehicles and business jets. 72% of revenue comes from the US Department of Defense. General Dynamics currently has a 3.0% yield and a payout ratio of 26.6%.
3) Applied Materials (AMAT): Applied Materials is a supplier of semiconductor manufacturing equipment. I've written about Applied Materials previously. Applied currently has a 3.2% yield and a payout ratio of 20.7%.
For a dividend investor, the sustainability of the dividend is very important, and companies with low payout ratios allow for the dividend to be well supported by earnings.