David Sterman

Looking at the current state of the economy, it looks like we're heading into another year of very low interest rates and insultingly low yields for most bonds and certificates of deposit (CDs). These days, a stock with a dividend yield as low as 2% is enough to get many investors' attention. But that's not good enough for me. Many of these dividend-paying firms can do a lot better. They are retaining almost all of their earnings while still earmarking relatively small amounts for a dividend.

To see how often this happens, I scanned all of the companies in the S&P 600, focusing on stocks that paid 25% or less of their profits as a dividend. These companies could easily manage to boost that payout ratio up to 50% without jeopardizing their financial health. By doing so, small yields might suddenly become large yields, giving investors a reason to own these names ahead of time.

David Sterman

David Sterman has worked as an investment analyst for nearly two decades. He is currently an analyst for StreetAuthority.com

Get the best of Townhall Finance Daily delivered straight to your inbox

Follow Townhall Finance!