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%.
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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%.
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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%.
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4) Aflac (AFL): Aflac is an insurance company with a market capitalization of $20 billion. Aflac has a 3.0% yield and a payout ratio of 29.4%.
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5) Northrop Grumman (NOC): Northrop is one of the largest defense contractors in the US. Northrop has a 3.3% yield and a payout ratio of 26.2%.
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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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
