A company's "payout ratio" is the portion of profits it returns to stockholders as dividends. Lower is better, investors often assume. The logic is that companies whose dividends are much smaller than their profits seem likely to be able to afford their payments. They also seem better able than most to invest leftover profits into projects that create growth. Those assumptions might need rethinking. Seven years ago, Financial Analysts Journal published a study by money managers Robert Arnott and Clifford Asness titled, "Surprise! Higher Dividends = Higher Earnings Growth." It showed that during a 45-year period beginning after World War II, the top quartile of U.S. companies in terms of payout ratios each year grew their earnings at an average of 4.2%, net of inflation, over the subsequent 10 years. Earnings for the bottom quartile shrank by 0.4% a year.
At the moment, that finding might portend slow growth for U.S. companies in general. The average payout percentage since World War II has been close to 50%. Over the past two decades, it has fallen to 40%. If earnings and dividend forecasts prove accurate for this year, the payoff percentage might dip below 30%. The three companies below defy that trend. Over the past year, they paid stockholders dividends equal to 60% and 80% of their profit.
Lance
Dividend yield: 3.4%
Payout percentage: 72%
Payout percentage: 72%
Gross domestic product took a hit last year, but there was little sign of a snack recession. On the contrary, salty snack volumes held steady and revenues grew 7% because of price hikes, according to industry researcher Information Resources. Charlotte, N.C.-based Lance (LNCE: 18.00, -0.09, -0.49%) makes cracker sandwiches, nuts, potato chips and more under its namesake brand and other names like Cape Cod and Archway. It also does a brisk business in private-label snacks, which have been gaining share of late as customers search for bargains. Shares trade at about 17 times this year's earnings forecast of $1.09 a share, which seems a full price, but the company is only beginning the reap the benefits of a new distribution system put in place in recent years. According to Scott Van Winkle of Canaccord Genuity, Lance has an opportunity to improve operating margins from 6% at present to 9% or 10% over the next several years, resulting in earnings of close to $2.00 a share.
Pfizer
Dividend yield: 4.9%
Payout percentage: 67%
Payout percentage: 67%
Like most of Big Pharma, New York-based Pfizer (PFE: 15.21, -0.26, -1.68%) faces looming patent expirations and weak productivity from its recent research spending. However, Jeffrey Holford of investment bank Jefferies & Company initiated coverage of the stock last month with a "buy" recommendation, based largely on the company's financial flexibility. He expects Pfizer to generate more than $23 billion in free cash through 2014 after paying for dividends and stock repurchases. That's more than 18% of the company's current stock market value, and together with the current cash stockpile amount to more than enough pay off debt left from Pfizer's $68 billion purchased of drug maker Wyeth last year. That should provide the company with plenty of room to boost its dividend (which it halved upon announcing the Wyeth purchase) and repurchase more stock. Shares seem priced for low expectations at just seven times earnings.
Philip Morris International
Dividend yield: 5.2%
Payout percentage: 66%
Payout percentage: 66%
Even if the percentage of smokers world-wide declines by 1% a year, there will be 1.4 billion smokers by 2020, up from 1.3 billion today, due to population growth, estimates Morningstar Equity Research. Philip Morris International (PM: 45.91, +0.31, +0.67%) enjoys the scale and pricing power of brands like Marlboro, Virginia Slims and Parliament, just like 
Altria (MO: 20.02, +0.03, +0.15%) in the U.S., but without the profit-crimping regulatory environment. The company leads the market in Europe and many markets in the Middle East, Asia and Africa -- with the notable exception of China, where China National Tobacco has a near-monopoly. The company turns about 40 cents of each sales dollar into operating profit, a much better rate than most of its peers, which gives it the ability to invest in marketing and distribution to take share from smaller local competitors. Currently, management particularly likes the growth prospects in India and Vietnam.
Altria (MO: 20.02, +0.03, +0.15%) in the U.S., but without the profit-crimping regulatory environment. The company leads the market in Europe and many markets in the Middle East, Asia and Africa -- with the notable exception of China, where China National Tobacco has a near-monopoly. The company turns about 40 cents of each sales dollar into operating profit, a much better rate than most of its peers, which gives it the ability to invest in marketing and distribution to take share from smaller local competitors. Currently, management particularly likes the growth prospects in India and Vietnam.
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