In this article, we will take a look at the 10 Dividend Stocks With Low Payout Ratios and Strong Upside Potential.
Payout ratios are one of the key metrics investors look at when evaluating dividend stocks. The payout ratio shows the percentage of a company’s net income that is paid to shareholders through regular dividends.
According to a report by Fidelity Investments, companies with payout ratios between 40% and 60% tend to demonstrate better capital allocation discipline and generate more stable free cash flow.
Wellington Management also examined the relationship between dividend payouts and long-term stock performance. The firm divided dividend-paying stocks into five quintiles based on their payout levels. The first quintile included the top 20% of dividend payers, while the fifth quintile represented the bottom 20%. The study found that second-quintile stocks outperformed the S&P 500 Index in six of the 10 periods analyzed between 1930 and 2025. The remaining quintiles outperformed the index in only half of those periods.
According to Wellington Management, one reason second-quintile dividend stocks delivered stronger long-term returns is that the highest dividend payouts were not always sustainable. The firm also reviewed the average payout ratios of the top two quintiles within the Russell 1000 Index since 1983. First-quintile companies posted an average payout ratio of 72%, while second-quintile companies averaged 49%.
A payout ratio of 72% can become difficult to maintain if earnings decline. In that situation, a company may have to reduce its dividend. Dividend cuts are often viewed by investors as a sign of financial weakness and can put pressure on a company’s share price.
Given this, we will take a look at some of the best dividend stocks with low payout ratios.
Our Methodology:
For this article, we screened for companies that consistently distribute dividends to their shareholders. From this initial selection, we narrowed down the list to include only those companies with a 5-year average payout ratio below 60%, indicating a robust cash position. From that list, we identified stocks with a minimum upside potential of 15% based on analysts’ targets, as of June 24. We picked companies that have recently reported noteworthy developments likely to impact investor sentiment. These companies are also popular among hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Insider Monkey’s quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 599.2% since May 2014, beating its benchmark by 372 percentage points (see more details here).
10. FactSet Research Systems Inc. (NYSE:FDS)
Upside Potential as of June 24: 15.24%
5-Year Average Payout Ratio: 30.23%
On June 18, Rothschild & Co Redburn downgraded FactSet Research Systems Inc. (NYSE:FDS) to Sell from Neutral and cut its price target to $215 from $291. Analyst Henry Hayden said FactSet’s pricing power is coming under pressure as the terminal’s “dominance erodes” with data consumption becoming increasingly unbundled. He believes this risk is not fully reflected in the stock’s valuation. In a research note, the analyst added that AI disintermediation risks are adding to FactSet’s “structurally challenged” end markets, which are already dealing with fee compression, industry consolidation, and limited headcount growth.
On May 27, RBC Capital lowered its price recommendation on FDS to $240 from $243. It reiterated a Sector Perform rating ahead of the company’s third-quarter results. Analyst Ashish Sabadra said the firm expects an Annual Subscription Value (ASV) beat, driven by international pricing increases, strong demand, and a healthy pipeline across regions and client types. RBC also said FactSet’s expanded managed services offerings, competitive product positioning, and structural changes to its sales compensation model support its growth expectations.
FactSet Research Systems Inc. (NYSE:FDS) is a global financial digital platform and enterprise solutions provider. The company delivers financial data, analytics, and open technology solutions to clients worldwide, including individual users.
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