Experts say dividend stocks can be an excellent investment with U.S. interest rates currently low. Here are six dividend stocks with low payouts that are safe investments.
As a rule of thumb, the dividend on a stock is only as safe as the company paying it.
According to the experts, the lower the payout ratio on a dividend stock, the safer investment.
A measure of high versus low-yielding stocks is the U.S. 10-year Treasury yield, considered a high-yielding stock. Therefore, any company with a trailing 12-month dividend yield greater than the U.S. treasury yield is regarded as a high-yielding stock, Investopedia reports.
One way to look for safe dividend stocks is to look at the company’s payout ratio – a portion of its profits committed to repaying dividends. While this might sound like a bad thing, it’s a good thing. Why? When a company gets into financial trouble, one of the first things it starts doing is to stop paying dividends.
Investopedia offers this guideline: “A company that pays out greater than 50% of its earnings in the form of dividends may not raise its dividends as much as a company with a lower dividend payout ratio. Thus, investors prefer a company that pays out less of its earnings in the form of dividends.”
According to financial services company Morningstar, U.S. News reports the following six dividend stocks.
Atmos Energy is a U.S. natural gas distribution, transmission and storage company. Atmos pays a 2.6% dividend and has a 39% payout ratio. Morningstar gives Atmos a “buy” rating and $108 fair value estimate for ATO stock.
While not a household name, Conagra Brands is the second-largest frozen foods producer in the U.S. Conagra pays a 3.4% dividend and has a 37% payout ratio. Morningstar has given Conagra a “buy” rating and a $42 fair value estimate for CAG stock.
CVS Health is the largest U.S. pharmacy and health care provider with 10,000 retail locations. CVS pays a 2.4% dividend and has a 37% payout ratio. Morningstar has given CVS a “buy” rating and a $95 fair value estimate for CVS stock.
FMC is one of the leading suppliers of insecticides, herbicides, fungicides and other crop protection chemicals. FMC pays a 2.1% dividend and has a 44% payout ratio. Morningstar has given FMC a “buy” rating and a $108 fair value estimate for FMC stock.
Lockheed Martin is an aerospace and defense contractor. Lockheed pays a 2.9% dividend and has a 40% payout ratio. Morningstar has given Lockheed Martin a “buy” rating and a $425 price target for LMT stock.
ViacomCBS is the owner of the CBS network and is making gains with its free, ad-supported Pluto TV service. ViacomCBS pays a 2.4% dividend and has an 18% payout ratio. Morningstar has given ViacomCBS a “buy” rating and a $61 fair value estimate for VIAC stock.