Folks who need a good income stream, then, may be looking elsewhere to have regular investment additions to their budgets. An annuity may be one option, but often one sacrifices some of a nest egg for the boon of guaranteed checks coming through an insurance company or other annuity manager.

In a 26-year study by Credit Suisse, from January, 1980, to June, 2006, it was found that higher yielding stocks, which also had low dividend payout ratios, on average provided total annual returns of better than 19%. Studies have also shown that higher yield lower payout stocks are less risky in market downturns than either higher yielding but higher payout stocks or the major indexes.

As the terms suggest, high dividend payout companies use more of their available earnings on their dividends to shareholders, leaving them lower balances for research and development, expansion, or dealing with the business consequences of recessions or increased competition. They are, in general, more likely, then, to find such policies unsustainable and so have to subsequently cut their dividends. Such stocks are particularly vulnerable to losses.

A sample of such stocks, with reasonably good dividends and relatively low payout ratios, is included in the table.

Primary source: High Yield, Low Payout. Panka N. Patel, Souheang Yao, and Heath Barefoot in Credit Suisse Quantitative Equity Research; August 15, 2006, pages 30-32.

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)