9 Safe Dividend Stocks With Low Payout Ratios


Analysts love these dividend stocks.

When interest rates are low, dividend stocks can be an excellent source of income for investors. Unfortunately, a stock’s dividend is only as safe as the company paying it. When a company runs into financial trouble, the dividend is often the first thing on the chopping block. One quick way to assess a stock’s dividend reliability is by looking at its payout ratio, which is the percentage of a company’s profits that is committed to dividends. Typically, the lower the payout ratio, the safer the dividend. Here are nine dividend stocks to buy with payout ratios less than 60%, according to financial services company Morningstar.

Atmos Energy Corp. (ticker: ATO)

Atmos Energy is a U.S. natural gas distribution, transmission and storage company. Analyst Charles Fishman says the one-time extraordinary natural gas costs associated with Winter Storm Uri will not have a lingering negative impact on Atmos’ balance sheet, thanks to new Texas legislation allowing for securitization of those costs. Excluding the $2.2 billion in extra natural gas costs, Fishman says Atmos has an attractive valuation and a conservative balance sheet relative to peers. Atmos pays a 2.6% dividend and has a 39% payout ratio. Morningstar has a “buy” rating and $108 fair value estimate for ATO stock.

Conagra Brands Inc. (CAG)

Conagra Brands is the second-largest U.S. frozen foods producer. Frozen food sales skyrocketed during the 2020 health crisis, but analyst Rebecca Scheuneman says inflation is squeezing Conagra’s margins in the near term. She estimates that it will take the company about three months to implement price hikes and other inflation-mitigating strategies. Scheuneman also thinks higher food prices may delay Americans from returning to restaurants, potentially providing a near-term tailwind for frozen food sales. Conagra pays a 3.4% dividend and has a 37% payout ratio. Morningstar has a “buy” rating and a $42 fair value estimate for CAG stock.

CVS Health Corp. (CVS)

CVS Health is the largest U.S. pharmacy health care provider. Analyst Julie Utterback says the stock is attractively valued at a forward earnings multiple of just 10.1. Utterback says CVS is uniquely positioned as a health care company, thanks to its 10,000 retail locations and its market-leading medical and pharmacy benefit management business. She says CVS has an opportunity to significantly improve returns over time as it expands service offerings. CVS pays a 2.4% dividend and has a 37% payout ratio. Morningstar has a “buy” rating and a $95 fair value estimate for CVS stock.

FMC Corp. (FMC)

FMC is a leading supplier of insecticides, herbicides, fungicides and other crop protection chemicals. Analyst Seth Goldstein says FMC faces higher costs over the next several quarters, but higher crop prices typically lead to more spending by farmers on crop protection. Given crop prices are near multiyear highs, Goldstein anticipates that crop chemical demand will remain elevated through at least 2022. Management plans to raise prices to preserve margins. FMC pays a 2.1% dividend and has a 44% payout ratio. Morningstar has a “buy” rating and a $108 fair value estimate for FMC stock.

Intel Corp. (INTC)

The last several years have been disastrous for semiconductor giant Intel. The company’s manufacturing issues have opened the door for competitors such as Advanced Micro Devices Inc. (AMD) to gain a performance edge on Intel chips. Despite the issues, analyst Abhinav Davuluri is bullish on Intel’s aggressive new road map, which includes annual performance increases, a new transistor structure for 2024 and extreme ultraviolet lithography adoption for 2023 products. Davuluri sees valuation upside for Intel stock, which pays a 2.6% dividend and has a 30% payout ratio. Morningstar has a “buy” rating and a $65 fair value estimate for INTC stock.

Lockheed Martin Corp. (LMT)

Lockheed Martin is a diversified aerospace and defense contractor. In the second quarter, Lockheed reported a $225 million charge on a classified aeronautics program. Analyst Burkett Huey says the charge may be an indication that Lockheed is participating in the U.S. government’s Next Generation Air Dominance program. Huey says Lockheed stock is cheap, and the company’s $1.5 billion in buybacks in the first two quarters of 2021 suggests Lockheed management agrees. Lockheed pays a 2.9% dividend and has a 40% payout ratio. Morningstar has a “buy” rating and a $425 price target for LMT stock.

M&T Bank Corp. (MTB)

M&T Bank is a commercial-focused U.S. regional bank. Given M&T derives about two-thirds of its total income from net interest income, analyst Eric Compton says M&T is highly sensitive to changes in interest rates. If the Federal Reserve is more aggressive than anticipated with its eventual asset purchase tapering and interest rate hikes, it could boost M&T’s net interest margins and be a bullish catalyst for the stock. M&T Bank pays a 3.2% dividend and has a 34% payout ratio. Morningstar has a “buy” rating and a $156 fair value estimate for MTB stock.

Omnicom Group Inc. (OMC)

Omnicom is the second-largest global advertising agency by revenue. Analyst Ali Mogharabi says ad spending is recovering nicely so far in 2021, and management anticipates that margin improvement will continue. The stock recently took a hit following reports that the National Football League will take some of its media ad budget in-house. Mogharabi says the NFL won’t significantly affect Omnicom’s sales, and he sees little risk that other customers will follow the NFL’s lead. Omnicom pays a 3.9% dividend and has a 42% payout ratio. Morningstar has a “buy” rating and an $89 fair value estimate for OMC stock.

ViacomCBS Inc. (VIAC)

ViacomCBS is a legacy media company and the owner of the CBS network, CBS All Access, Pluto TV and a number of cable TV networks. Analyst Neil Macker says a rebound in advertising and the return of live sports are boosting the company’s 2021 numbers, but streaming is key to long-term growth. ViacomCBS added 6.5 million global streaming subscribers in the second quarter, including 2.8 million subscribers for its free, ad-supported Pluto TV service. ViacomCBS pays a 2.4% dividend and has an 18% payout ratio. Morningstar has a “buy” rating and a $61 fair value estimate for VIAC stock.

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