In this article, we will be taking a look at 10 cheap dividend stocks with payout ratio under 40%. To skip our detailed analysis of dividend investing, you can go directly to see the 5 Cheap Dividend Stocks with Payout Ratio Under 40%.
Investing in dividend stocks is one of the most fool-proof ways to ensure long-term financial stability and increased income on a monthly or quarterly basis. As such, dividend stocks like Pepsico, Inc. (NASDAQ: PEP), Verizon Communications (NYSE: VZ), Target Corporation (NYSE: TGT), and Morgan Stanley (NYSE: MS) have managed to become known as some of the best stock options out there for income investors and others alike. However, dividend investing is not straightforward and one should consider several factors before buying stocks for dividends. For instance, taking into account the number of years a company has successfully increased its dividend, its payout ratio, P/E ratio, and other variables can truly be the deciding factors for an investment’s success. If a dividend stock has a payout ratio under 55% and has managed to raise its dividend for at least 25 years in a row, for instance, it would be a smart stock pick.
Let’s now look at why the above holds true. Considering the number of years a company has raised its dividend for first, we can see that dividend stocks that consistently increase their yield without cuts and slashes tend to outperform the market and their other counterparts most of the time. For instance, research conducted by the S&P Dow Jones Indices has concluded that between 2006 and 2015, dividend stocks with at least 25 years of dividend increases, which made up the S&P Dividend Aristocrats Index, managed to outperform the benchmark S&P 500 Index by about 3% every year during the time period studied.
Secondly, let’s look at why the payout ratio matters. A company’s payout ratio, simply put, is the amount it pays out to investors and shareholders in the form of dividends. It also impacts the amount the company is then able to reinvest in its own growth and future operations, and as such, it becomes clear that having a payout ratio that is either too high or too low would not be the most optimal scenario for anyone. If it is too high, the company is not left with enough finances to divert towards its own growth; on the other hand, if it is too low, then shareholders stand to gain less than they would elsewhere.
Typically, it is useful to invest in dividend stocks with payout ratios between 35-55%. In any case, Credit Suisse’s Quantitative Research department has estimated that between 1990 and 2006, dividend stocks with lower payout ratios managed to outperform their higher-paying counterparts by about 8.2% per year as well. This goes to show, then, that the payout ratio is a highly critical metric to consider before deciding where to invest.
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Without further ado, let’s take a look at the 10 cheap dividend stocks with payout ratio under 40%.
Our Methodology
For our list, we have selected cheap dividend stocks with share prices of at most about $60, and under. These stocks all have payout ratios under $40. Insider Monkey tracks the data of about 873 hedge funds, and we have also used this data to pick dividend stocks that are highly popular among hedge funds today. For each stock we have mentioned its yield, payout ratio, and the number of hedge funds holding a stake in it, ranking them from the highest to the lowest payout ratio. Finally, we have used analysts’ ratings to determine which stocks are favorably placed in analyst and investor circles, picking stocks with mostly positive ratings and strong fundamentals.
Cheap Dividend Stocks with Payout Ratio Under 40%
10. Peoples Bancorp Inc. (NASDAQ: PEBO)
Number of Hedge Fund Holders: 10
Dividend Yield: 4.56%
Payout Ratio: 36.7%
Peoples Bancorp Inc. (NASDAQ: PEBO) is the holding company for Peoples Bank. The company accepts deposit products, like demand deposit accounts, savings accounts, money market accounts, and certificates of deposit, and provides a range of other financial services. It ranks 10th on our list of cheap dividend stocks with payout ratio under 40%.
B. Riley analyst Steve Moss, as of this April, holds a Buy rating and a raised price target of $40 on shares of Peoples Bancorp Inc. (NASDAQ: PEBO). This is compared to the analyst’s previous target of $36.
In the second quarter of 2021, Peoples Bancorp Inc. (NASDAQ: PEBO) had an EPS of $0.51, missing estimates by $0.14. The company’s revenue was $56.13 million, up 12.59% year over year and beating estimates by $1.55 million. Peoples Bancorp Inc. (NASDAQ: PEBO) has gained 15.98% year to date and 48.29% in the past year.
By the end of the second quarter of 2021, 10 hedge funds out of the 873 tracked by Insider Monkey held stakes in Peoples Bancorp Inc. (NASDAQ: PEBO) worth roughly $21 million. This is compared to 5 hedge funds in the previous quarter with a total stake value of approximately $10.4 million.
Like Pepsico, Inc. (NASDAQ: PEP), Verizon Communications (NYSE: VZ), Target Corporation (NYSE: TGT), and Morgan Stanley (NYSE: MS), Peoples Bancorp Inc. (NASDAQ: PEBO) is a good stock to invest in.
9. Bank of Marin Bancorp (NASDAQ: BMRC)
Number of Hedge Fund Holders: 10
Dividend Yield: 2.63%
Payout Ratio: 36.7%
Bank of Marin Bancorp (NASDAQ: BMRC), the holding company for Bank of Marin, is next on our list of cheap dividend stocks with payout ratio under 40%. The company offers personal and business checking and saving accounts, among other financial products and services. It ranks 9th on our list.
This July, Keefe Bruyette’s Jacquelynne Bohlen upgraded shares of Bank of Marin Bancorp (NASDAQ: BMRC) from Market Perform to Outperform. The analyst also holds a price target of $43 on the stock.
In the second quarter of 2021, Bank of Marin Bancorp (NASDAQ: BMRC) had an EPS of $0.71, beating estimates by $0.09. The company’s revenue was $26.56 million, up 1.41% year over year and beating the previous quarter’s revenue of $23.86 million. Bank of Marin Bancorp (NASDAQ: BMRC) has gained 4.65% year to date and 13.36% in the past year.
By the end of the second quarter of 2021, 10 hedge funds out of the 873 tracked by Insider Monkey held stakes in Bank of Marin Bancorp (NASDAQ: BMRC) worth roughly $18 million. This is compared to 4 hedge funds in the previous quarter with a total stake value of approximately $10.2 million.
Like Pepsico, Inc. (NASDAQ: PEP), Verizon Communications (NYSE: VZ), Target Corporation (NYSE: TGT), and Morgan Stanley (NYSE: MS), Bank of Marin Bancorp (NASDAQ: BMRC) is a good stock to invest in.
8. West Bancorporation, Inc. (NASDAQ: WTBA)
Number of Hedge Fund Holders: 3
Dividend Yield: 3.08%
Payout Ratio: 35.8%
West Bancorporation, Inc. (NASDAQ: WTBA), the financial holding company for West Bank, offers community banking and trust services to individuals and small to medium-sized businesses in the US. The company ranks 8th on our list of cheap dividend stocks with payout ratio under 40%.
In the second quarter of 2021, West Bancorporation, Inc. (NASDAQ: WTBA) had an EPS of $0.79, beating estimates by $0.17. The company’s revenue was $25.36 million, up 12.62% year over year and beating estimates by $1.36 million. West Bancorporation, Inc. (NASDAQ: WTBA) has gained 31.01% in the past 6 months and 61.85% year to date.
By the end of the second quarter of 2021, 3 hedge funds out of the 873 tracked by Insider Monkey held stakes in West Bancorporation, Inc. (NASDAQ: WTBA) worth roughly $8.5 million. This is compared to 1 hedge fund in the previous quarter with a total stake value of approximately $7.4 million.
Like Pepsico, Inc. (NASDAQ: PEP), Verizon Communications (NYSE: VZ), Target Corporation (NYSE: TGT), and Morgan Stanley (NYSE: MS), West Bancorporation, Inc. (NASDAQ: WTBA) is a good stock to invest in.
7. Fulton Financial Corporation (NASDAQ: FULT)
Number of Hedge Fund Holders: 11
Dividend Yield: 3.46%
Payout Ratio: 35.7%
Fulton Financial Corporation (NASDAQ: FULT), yet another financial holding company, offers banking and financial services to businesses and consumers. The company ranks 7th on our list of cheap dividend stocks with payout ratio under 40%.
As of this April, Raymond James holds a Market Perform rating on shares of Fulton Financial Corporation (NASDAQ: FULT).
In the second quarter of 2021, Fulton Financial Corporation (NASDAQ: FULT) had an EPS of $0.38, beating estimates by $0.07. The company’s revenue was $214.29 million, up 2.69% year over year but missing estimates by $3.02 million. Fulton Financial Corporation (NASDAQ: FULT) has gained 1% in the past 6 months and 27.42% year to date.
By the end of the second quarter of 2021, 11 hedge funds out of the 873 tracked by Insider Monkey held stakes in Fulton Financial Corporation (NASDAQ: FULT) worth roughly $30.1 million. This is compared to 7 hedge funds in the previous quarter with a total stake value of approximately $38 million.
Like Pepsico, Inc. (NASDAQ: PEP), Verizon Communications (NYSE: VZ), Target Corporation (NYSE: TGT), and Morgan Stanley (NYSE: MS), Fulton Financial Corporation (NASDAQ: FULT) is a good stock to invest in.
6. BancorpSouth Bank (NYSE: BXS)
Number of Hedge Fund Holders: 18
Dividend Yield: 2.72%
Payout Ratio: 35.6%
BancorpSouth Bank (NYSE: BXS) is a Mississippi-based bank holding company. It operates in Alabama, Arkansas, Florida, Louisiana, Mississippi, Missouri, Tennessee, Texas, and Illinois. The company ranks 6th on our list of cheap dividend stocks with payout ratio under 40%.
Kevin Fitzsimmons, an analyst at DA Davidson, this June upgraded shares of BancorpSouth Bank (NYSE: BXS) from Neutral to Buy. The analyst also holds a $34 price target on the stock.
In the second quarter of 2021, BancorpSouth Bank (NYSE: BXS) had an EPS of $0.86, beating estimates by $0.18. The company’s revenue was $282.13 million, up 7.45% year over year and beating estimates by $13.50 million. BancorpSouth Bank (NYSE: BXS) has gained 6.71% year to date and 34.49% in the past year.
By the end of the second quarter of 2021, 18 hedge funds out of the 873 tracked by Insider Monkey held stakes in BancorpSouth Bank (NYSE: BXS) worth roughly $112 million. This is compared to 12 hedge funds in the previous quarter with a total stake value of approximately $67 million.
Like Pepsico, Inc. (NASDAQ: PEP), Verizon Communications (NYSE: VZ), Target Corporation (NYSE: TGT), and Morgan Stanley (NYSE: MS), BancorpSouth Bank (NYSE: BXS) is a good stock to invest in.
Click to continue reading and see the 5 Cheap Dividend Stocks with Payout Ratio Under 40%.
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Disclosure: None. 10 Cheap Dividend Stocks with Payout Ratio Under 40% is originally published on Insider Monkey.
