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.
9. Ecolab Inc. (NYSE:ECL)
Upside Potential as of June 24: 17.2%
5-Year Average Payout Ratio: 43.96%
On June 24, Citi raised its price recommendation on Ecolab Inc. (NYSE:ECL) to $330 from $325. It reiterated a Buy rating on the stock. The firm also placed Ecolab on an “upside 90-day catalyst watch,” calling it its top specialty chemicals pick heading into the second-quarter earnings season. Analyst Patrick Cunningham said the company stands to benefit the most from easing raw material costs. In a research note, he added that Ecolab’s “mission-critical” products put the company in a strong position to convert surcharges into structural pricing.
On June 10, Wells Fargo raised its price goal on ECL to $275 from $260. It maintained an Equal Weight rating. The firm said it met with Investor Relations executive Andy Hedberg at its Industrials Conference and came away encouraged by Ecolab’s confidence in offsetting commodity cost pressures through its energy surcharge. Wells Fargo also noted that the company’s growth engines, particularly its High-Tech business, continue to drive growth.
Ecolab Inc. (NYSE:ECL) provides water, hygiene, and infection prevention solutions and services designed to protect people and the resources essential to life.
8. Canadian National Railway Company (NYSE:CNI)
Upside Potential as of June 24: 18.2%
5-Year Average Payout Ratio: 41.31%
On June 25, Evercore ISI upgraded Canadian National Railway Company (NYSE:CNI) to Outperform from In Line. It also raised its price target on the stock to $124 from $108. Analyst Jonathan Chappell said it appears CN is heading into its second-quarter earnings report with the potential for “a material beat & raise” for the first time in nearly three years. He noted that the company’s guidance ranges for this year “always seemed conservative.” With six months of results in hand and positive volume momentum continuing through the second quarter, the firm believes CN could deliver a meaningful earnings beat and raise its RTM and EPS growth targets for the year.
On June 24, RBC Capital raised its price recommendation on CNI to C$195 from C$178. It reiterated an Outperform rating. The update came as part of the firm’s broader preview of second-quarter results for Class I railroads. The analyst said CN is among the railroads expected to deliver the strongest earnings upside compared with consensus estimates, supported by solid volume trends. RBC also pointed to the company’s favorable network dynamics, GDP-plus growth opportunities, potential for margin improvement, and discounted valuation as reasons for its positive outlook.
Canadian National Railway Company (NYSE:CNI) is a transportation and logistics company. It provides rail, intermodal, trucking, and supply chain services.
7. Bath & Body Works, Inc. (NYSE:BBWI)
Upside Potential as of June 24: 21.07%
5-Year Average Payout Ratio: 19.85%
On June 23, Wells Fargo raised its price recommendation on Bath & Body Works, Inc. (NYSE:BBWI) to $26 from $25. It reiterated an Overweight rating on the shares. The firm said bearish investors remain focused on low-single-digit core growth and limited visibility into future innovation. Still, its recent channel checks suggest that new product launches and innovation expected in July could quickly improve investor sentiment and change the narrative, according to the analyst’s research note.
Also on June 23, Reuters reported that shoppers at Ulta Beauty will soon be able to buy Bath & Body Works’ signature fragrances, hand soaps, and candles at more than 600 stores beginning July 12, as both companies continue turnaround efforts that include expanding brand partnerships.
Part of Bath & Body Works’ “Consumer First Formula” is designed to give customers more ways to shop for the company’s lotions and candles. At the same time, the “Ulta Beauty Unleashed” strategy aims to introduce more brand partnerships to help drive sales growth.
Bath & Body Works, Inc. (NYSE:BBWI) is a global omnichannel retailer focused on personal care and home fragrance. The company offers a range of fragrances for the body and home.
6. The Mosaic Company (NYSE:MOS)
Upside Potential as of June 24: 25.67%
5-Year Average Payout Ratio: 53.7%
On June 17, Freedom Broker double upgraded The Mosaic Company (NYSE:MOS) to Buy from Sell. It raised a stock’s price target to $32 from $24. The analyst said sulfur costs surged and phosphate gross margins came under pressure following the closure of the Strait of Hormuz, but that trend should reverse after the signing of the U.S.-Iran agreement. In a research note, the firm said it expects normalizing sulfur supply to drive a recovery in Mosaic’s margins and support a return to the stock’s pre-closure valuation levels.
On May 21, BMO Capital lowered its price recommendation on MOS to $31 from $35. It reiterated an Outperform rating on the shares. The analyst said near-term sentiment around the stock remains mixed because of volatility in sulfur and phosphate stripping margins. Even so, the firm views Mosaic as trading at a relatively low point in investor sentiment and believes patient investors are likely to be rewarded.
The Mosaic Company (NYSE:MOS) produces and markets concentrated phosphate and potash crop nutrients. Its business operates through the Phosphates, Potash, and Mosaic Fertilizantes segments.
While we acknowledge the potential of MOS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than MOS and that has 100x upside potential, check out our report about the cheapest AI stock.
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