4 Dividend Stocks with Low Payout Ratios, Good Yields and Low P/Es

These 4 dividend-paying stocks have low payout ratios. This is the ratio between dividends and earnings produced by a company. A low ratio means their dividends do not take up a large part of earnings. This provides stability to their ability to keep paying the dividend. That will be very important if the US enters into a severe recession, which is very possible.

In addition, we wanted to find those stocks that are cheap on a price-to-earnings (P/E) basis, and have good dividend yields. The latter is the ratio of the dividend to the stock price and indicates how much you make in percentage terms from the dividend.

The 4 stocks are:

• HP Inc (HPQ)-This low P/E tech stock has a 2.72% dividend yield with a low 23.5% payout ratio.
• CVS Health (CVS) - This pharmacy/insurer has a low P/E, a 2.26% yield, and a low 26.3% payout ratio.
• Tyson Foods (TSN) - This meat producer has a low P/E, a 2.0% yield, and a low 20.2% payout ratio.
• Cummins, Inc (CMI) - This large engine maker has a low P/E, a 2.88% yield, and a low 32.9% payout ratio.

These dividend stocks have the best of all worlds. They have good growth characteristics, low valuations, and low payout ratios, which provide room for other uses of their cash flow. In addition, they have good dividend yields, which provide income for the dividend and growth stock investor. 

Typically, but not always, companies with low payout ratios tend to have medium to average yields, but also good share buyback programs.

These particular stocks can withstand a recession and maintain their dividends. Since their dividends do not take up more than 50% of earnings, they are not likely to cut the dividends.

Let's dive in and look at these dividend stocks.

HP Inc (HPQ)

HP is a low-tech company that has a decent 2.72% yield as well as a hefty, consistent buyback program. Its annual dividend is $1.00 per share, which represents just 23.5% of its forecast $4.26 earnings per share (EPS) for 2022. 

Moreover, HP has produced 11 consecutive years of dividend increases, as well as 32 years of continuous dividend payments.

Based on analysts’ estimates, HPQ stock trades for just 8.5 times the forward earnings per share (EPS) forecasts.

HP's low payout ratio allows it to pay out $271 million on dividends in Q1 based on its $1.4 billion in free cash flow. It also spent $1.5 billion on share repurchases.

Warren Buffett likes HP and recently took a large 11.4% stake in the company. HPQ stock is likely to be one of the top dividend stocks to own for the long term.

CVS Health (CVS)

CVS Health has over 9,900 retail drug stores and 1,100 walk-in MinuteClinic locations. It also acquired Aetna in late 2018, a giant health insurance company. This has helped stabilize its earnings, allowing it to pay out a solid $2.20 dividend per share (DPS).

This means it has a low payout ratio. For example, EPS estimates are $8.36 this year, so its payout ratio is low at 26.3%. Moreover, CVS stock has a low P/E multiple of just 11.7 given its price on May 13 of $97.48.

In addition, CVS has started buying back large amounts of shares. Last quarter it bought back over $2 billion of common stock. On an annualized basis that represents over 6.3% of its $127.8 billion market capitalization. That will help make it one of the most undervalued dividend-paying stocks.

Tyson Foods (TSN)

This meat producer has a low forward P/E of just 10.5 times forecast earnings for 2022, based on EPS of $9.09. In addition, its $1.84 annual dividend provides an ample 2.0% dividend yield. This also means its payout ratio is low at 20.2% (i.e., $1.84/$9.09).

Moreover, Tyson Foods dramatically increased its share buyback activity during its latest quarter ending Jan. 31. It repurchased $348 million of common stock compared to $16 and $17 million in the prior two quarters. This works out to 4.2% of its $32.9 billion market value on an annualized basis. 

That makes it one of the best undervalued dividend-paying stocks with low payouts and valuations.

Cummins Food (CMI)

Cummins Inc makes, distributes, and services large diesel and natural gas engines. Cummins pays out a $5.80 DPS, which represents a low 33% of its forecast $17.53 EPS for 2022. Moreover, based on the price on May 13 of $201.12, its dividend yield of 2.88% ($5.80/$201.12).

Analysts project that Cummins is on a low forward P/E multiple of just 11.0 times for 2022 and 10 times for 2023.

Moreover, at the end of Q1, Cummins bought back $311 million of its shares. It plans to return approximately 50 percent of operating cash flow to shareholders in the form of dividends and share repurchases.

That makes Cummins one of the cheapest and most attractive dividend stocks for investors going forward.