By Philip van Doorn
Companies passing the screen for low valuations, rapid dividend growth and business-expansion prospects include PepsiCo and Occidental Petroleum
When selecting individual stocks, some investors prefer companies that pay quarterly dividends and have a steady record of increasing payouts over the long term. But a high dividend yield could also signal a potential trap. A company’s share price might be low relative to its dividend because money managers expect a cut to the payout or see other potential problems for a company.
In a recent article, John Buckingham, editor of the Prudent Speculator investing newsletter, suggested that investors who have been worried about this year’s volatility in the stock market and the market’s high valuation as a whole “add some classic defensive plays favored by conservative investors to your portfolio – dividend-paying stocks.” The italics are his, and you can read the article here.
The Prudent Speculator has taken a value-based approach to selecting stocks since the late 1970s. It has a second-place ranking for 30-year average return for investing newsletters tracked by the Hulbert Financial Digest.
In his article, Buckingham suggested that an investor selecting dividend stocks be “a greedy contrarian.” The Prudent Speculator runs deep stock screens using various quality factors, but we are going to screen them using a more limited approach here.
Since Buckingham suggested that investors consider small-cap stocks as well as shares of larger and better-known companies, we began our screen with the S&P Composite 1500 Index XX:SP1500, which is made up of the S&P 500 SPX, the S&P MidCap 400 Index MID and the S&P Small Cap 600 Index SML.
When discussing the type of dividend stock he favors, Buckingham wrote: “These companies should pay a dividend yield substantially higher than that of the S&P 500 (recently just shy of 1.3%).” He added that the stocks should be “out of favor and cheap.” By this he meant stocks trading “at low valuations relative to companies’ own long-term histories and/or at a discount to their future growth estimates.”
To encompass those ideas, we started with the S&P Composite 1500 and narrowed the list as follows:
— We cut the list to 555 stocks with dividend yields of 2% or higher, according to data provided by FactSet.
— We narrowed the list to 423 companies covered by at least five analysts working for brokerage or research firms polled by FactSet, for which revenue estimates were available through calendar 2027.
— Then we narrowed further to 134 companies whose forward price-to-earnings ratios were less than 80% of their 10-year average valuations. The forward P/E ratio is the most commonly cited stock valuation measure. It is a stock’s current price divided by the consensus estimate for that company’s earnings per share for the next 12 reported months. For the S&P 500, the current forward P/E is 22.4, compared with a rolling 10-year average forward P/E of 18.8.
— Going further, we cut our remaining list of 134 companies to 94 companies for which forward P/E ratios were below the weighted composite P/E ratios for their respective stock sectors. At this point, 10 of the 11 Standard & Poor sectors were represented by stocks passing the screen, with the information technology sector being the exception. The IT sector has a forward P/E of 29.6 – the highest of any sector.
— Then we cut the list to 30 companies whose expected compound annual growth rates for revenue from calendar 2025 through calendar 2027 were higher than those for their respective sectors. We used calendar-year estimates, as adjusted if necessary by FactSet, for companies whose fiscal reporting periods don’t match the calendar.
— For the last part of the screen, we cut the list to the 17 remaining companies whose CAGR for regular dividends from over the past five years was higher than the S&P 500’s dividend CAGR of 5.1%. For the index we used FactSet’s data for dividends for five years through 2024. For the individual stocks we compared FactSet’s data for current annual payout rates to those from five years ago, so companies that weren’t paying dividends at that time were excluded.
Related: JPMorgan Chase, Goldman Sachs and others boost dividends – check out how they’ve rewarded their committed shareholders
Here are the 17 stocks that passed the screen, sorted by current dividend yield:
Company Ticker Dividend yield Forward P/E Est. revenue CAGR from 2025 through 2027 Five-year dividend CAGR
Upbound Group Inc. UPBD 5.92% 5.6 8.0% 6.1%
Columbia Banking System Inc. COLB 5.64% 9.0 18.6% 5.2%
Murphy Oil Corp. MUR 5.31% 11.5 7.3% 21.1%
PepsiCo Inc. PEP 4.20% 16.7 3.0% 6.8%
Atlantic Union Bankshares Corp. AUB 4.05% 9.7 8.9% 6.3%
Essential Utilities Inc. WTRG 3.54% 17.0 6.4% 6.8%
Coterra Energy Inc. CTRA 3.41% 8.2 6.2% 16.5%
Bank OZK OZK 3.33% 8.1 5.4% 9.3%
EOG Resources Inc. EOG 3.31% 11.8 8.0% 22.2%
Brown-Forman Corp. Class B BF.B 3.20% 16.9 1.9% 5.4%
Archrock Inc. AROC 3.08% 14.4 7.4% 5.6%
Ovintiv Inc OVV 3.01% 8.3 5.0% 26.2%
UnitedHealth Group Inc. UNH 2.87% 13.0 6.2% 12.1%
Lamb Weston Holdings Inc. LW 2.82% 15.1 2.5% 10.0%
Banc of California Inc. BANC 2.71% 10.5 8.8% 10.8%
Constellation Brands Inc. Class A STZ 2.37% 13.2 1.1% 6.3%
Occidental Petroleum Corp. OXY 2.19% 15.3 4.0% 88.8%
Source: FactSet
This screen is an attempt to bring in several of Buckingham’s suggestions, including relatively low P/E valuations and prospects for business expansion. It also covers companies’ dividend increases.
But a screen might be most useful as a tool to incorporate into your own research. If you see any companies of interest, you should learn more about them to form your own opinions about their prospects for remaining competitive over the next decade at least.
One way to begin that process is to click on the tickers for more information about each company.
Read: Tomi Kilgore’s detailed guide to the information available on the MarketWatch quote page
Don’t miss: 20 companies in the S&P 500 whose investors have gained the greatest rewards from stock buybacks
-Philip van Doorn
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07-07-25 1237ET
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