7 High Dividend Low Payout Ratio Stocks

Great stocks offering a special combination of succulent dividends, safe payout ratios, and dirt-cheap valuations

Many investors are aware of the study that says high dividend stocks offer greater total returns over time.

I can legitimately say that this study changed my life, at least in a small way. It was part of the reason why I abandoned a deep value approach about a decade ago, choosing instead to invest in dividend stocks.

But a lot of people don’t know one little detail that turned this solid strategy into something truly special. The study revealed that the true alpha came from choosing a portfolio of stocks that offered both high yields and low payout ratios. That’s the approach you’d take if you really wanted to supercharge returns.

Essentially, this combines a value approach with a dividend approach, and the results have been pretty spectacular — at least before the recent run-up of the largest names in the S&P 500.

(The whole study — plus an entire document on strategies with a demonstrated history of outperforming — is available for Canadian Dividend Investing premium subscribers)

Once I realized this relationship existed, I begun stuffing my portfolio with stocks that met the criteria. One was Capital Power (TSX:CPX), an independent power producer with a 6-7% dividend combined with a 30% AFFO payout ratio. I pounded the table on it consistently in 2023 and 2024, and the stock performed handsomely. It rose by more than 60% in 2024, including dividends.

Long-term returns have also been excellent. I first started buying Capital Power shares in 2019, and although shares stayed between $30 and $40 for years, it has been an excellent investment. Shares are up more than 20% annually if you reinvested your dividends, or more than 17.5% annually if you didn’t.

Even after the huge run-up, you could make the argument that Capital Power shares still offer that magical low payout/high dividend combination. The company should earn about $6.50 per share in AFFO in 2025, while the dividend is currently $2.60 per share. That gives us a payout ratio in the 40% range, not bad for a stock with a 4.2% yield.

Let’s take a quick look at 7 more stocks that offer a unique combination of a high yield and low payout ratio, with some from Canada and some from other parts of the world.

Cogeco Corporation

Cogeco Corporation (TSX:CGO) is the parent company of Cogeco Communications (TSX:CCA), which supplies various wireline telecom services for Southern Ontario, Quebec, and various parts of the United States.

No matter which Cogeco you buy, they’re both free cash flow machines. Both are expected to generate close to $10 per share in free cash flow in 2025, while shares of the parent trade at well under $60 each. That puts us at under 6x free cash flow for assets with pricing power, a history of growth, and that offer services most Canadians don’t want to live without. On the other hand, there is some competition — especially in the U.S. — and the near-term outlook is tepid at best. The company is also expecting some near-term costs as it rolls out a wireless offering to existing customers.

The parent offers a fantastic dividend of 6.8%, combined with a payout ratio of approximately 30% of free cash flow. But shares aren’t very liquid, so most investors go for Cogeco Communications. Its dividend is a little under 6% with a similar payout ratio.

This is an excellent REIT with a pretty good combination of a low payout ratio and high dividend. I’m a fan. Plus, when you talk about it for a while, you’ll become paranoid that you’ll accidentally make a typo and call it Flagshit REIT. Don’t ask me how I know this.

BNP Paribas

BNP Paribas (PA:BNP) is based in Paris and is the largest bank in Europe. It has operations across the continent, as well as in Asia and Africa. It is diversified with operations in personal and business banking, home and auto loans, capital markets, insurance, and wealth management, among others. It also has a strong balance sheet (as measured by the CET1 ratio) and has grown book value by a little more than 5% annually since 2011.

That doesn’t seem like much, but the company also pays one of the most generous bank dividends you’ll ever see. The current yield is more than 7%, and the payout has increased by 11.8% annually from 2011-23.

Despite what are excellent results versus other European banks, BNP trades at an incredibly cheap valuation. Shares trade hands at under 7× 2025’s expected earnings. This means that that 7.3% dividend — which should be increased in 2025 — actually comes with a payout ratio of approximately 50% of earnings. Not bad.

Algoma Central

Algoma Central (TSX:ALC) continues to offer an excellent dividend combined with a low payout ratio.

For those of you who are unfamiliar, Algoma is a niche shipper. It focuses its energy on areas like the Great Lakes, places with steady demand and not a whole lot of competition. It then supplements the Great Lakes business with other niche shipping routes, often signing long-term contracts with one or two specific customers.

It’s been a winning strategy over the decades, and especially so lately. In 2017, Algoma earned $0.70 in normalized earnings. In 2024, that number is expected to be about $1.80 per share. Not many analysts cover the stock, but they expect earnings to increase to $2.09 in 2026 as ships that are currently on order get deployed.

Despite earnings more than doubling since 2017, shares are basically flat since 2018. I believe that situation will reverse itself; eventually the share price will follow earnings.

Algoma offers an attractive combination of generous dividends today, a history of dividend growth, and a low payout ratio. The stock currently yields 5.5% after a recent dividend hike — the company’s fifth hike since 2020, plus two special dividends — and the payout ratio is still under 45% of projected 2024 earnings. The payout ratio is closer to 40% if 2025 earnings hit expectations.

I wrote about Algoma Central in great detail a few months ago. You can find that writeup here.

There are hundreds of posts in the Canadian Dividend Investing archives, good stuff that the majority of new subscribers haven’t seen yet. This section will highlight one of these posts, each and every week.

This week I’d like to feature my in-depth look at First National Financial (TSX:FN), one of the most intriguing financial stocks on the TSX. It offers a unique, asset-lite business model (which is quite rare for a financial stock), as well as massive insider ownership and one of the best dividends you’ll find.

The Campbell’s Company

There are tons of attractively-priced consumer staples stocks these days, especially ones with any sort of junk food exposure.

Bears are convinced Ozempic and other GLP-1 drugs will make junk food consumption fall forever. Others are more optimistic, pointing out that factors like population growth, expansion into other markets, and acquiring other products will fuel growth over the long-term.

The Campbell’s Company (NASDAQ:CPB) is currently reeling as investors fear recent weakness will be permanent. The main part of the company should be fairly insulated from this — it makes soups, broths, and pasta sauce, including the recent acquisition of Rao’s — but the worry is the snack part of Campbell’s will be impacted.

Snack brands include Goldfish, Pepperidge Farms, and Kettle potato chips. Snacks have grown to be almost 50% of Campbell’s sales, but that should decline slightly with the Rao’s acquisition.

One negative is profits haven’t really grown over the long-term. In 2014, Campbell’s earned $2.94 per share. More than a decade later, it is only expected to earn $3.14 per share.

On the plus side, the stock is cheap. It trades at just 12x forward earnings, and hopefully the Rao’s acquisition can usher in a new era of growth. The dividend yield has crept up to more than 4%, and that’s accompanied with a payout ratio in the 50% range. That combination isn’t bad. Oh, and there are plans to repurchase shares at today’s low valuation.

You know exactly how it works. I’ll pitch a stock, Twitter style. Everything you need to know in bullet form, less than 280 characters.

This week’s stock is Rogers Sugar (TSX:RSI)

  • Member of a dominant sugar duopoly in Canada, along with Redpath

  • Has expanded into maple syrup

  • Currently spending to expand its Montreal plant

  • This should increase earnings on a per share basis

  • Currently pays a steady, $0.09/share quarterly dividend

  • That’s a 6.2% yield

IGM Financial

IGM Financial (TSX:IGM) has been a tepid performer for better than a decade now, as investors bet that the parent of Investors Group and high-fee mutual fund company Mackenzie Financial gets eclipsed by a new generation of financial planners who suggest ETFs with ultra-low expenses. Investors keep more of their capital, even after the advisor takes their more-than-generous cut.

(We’re big advocates of DIY investing here. Can you tell?)

But IGM has quietly transformed itself behind the scenes over the last handful of years, gobbling up some interesting growth assets. Firstly, it’s the largest individual owner of WealthSimple, the fintech wealth manager currently gobbling up assets under management. IGM itself owns about 25%, with other parts of the Power Corporation (TSX:POW) conglomerate owning more of it.

IGM has also acquired stakes in various specialty money mangers, including Rockefeller Capital Management, a company that got its start decades ago managing money for the Rockefeller family. It also owns a stake in ChinaAMC, one of the leading asset managers in the world’s most populous country.

These investments — plus more — should secure IGM as one of Canada’s next growth companies. Its goal is to grow the bottom line by 9% annually through 2029.

As it stands today, IGM pays a $2.25 per share annual dividend, a payout it has maintained for a decade. Analysts expect it to earn $3.95 per share in 2024, with earnings increasing to $4.40 per share in 2025. That gives us a very reasonable 57% dividend payout ratio today, that that ratio dropping to 51% in 2025. Investors should start expecting dividend growth at that point.

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Apple Hospitality REIT

Although your author spends a lot of time analyzing Canadian REITs, there are also dozens of excellent REITs that trade in the United States.

One is Apple Hospitality REIT (NYSE:APLE), which is the owner of 225 mostly upscale hotel properties, spanning nearly 30,000 rooms across 37 states. These hotels operate under brands like Marriott, Hilton, and Hampton Inns.

Hotels are normally more prone to economic weakness versus other real estate sectors, but Apple Hospitality has two advantages there. Firstly, it has a great balance sheet. Debt is just over 30% of assets, and the debt is locked in at a relatively cheap rate. And secondly, the company’s hotels largely cater to business and more affluent travellers. These segments are more immune to the whims of the business cycle, and a great balance sheet is always a good thing.

Shares are also cheap, trading at approximately 10x forward funds from operations. That’s a terrific valuation; most other U.S. REITs trade at above 15x FFO.

It also translates into a low payout ratio, plus a high yield. APLE pays a US$0.08 per share monthly dividend, which works out to a 6.7% yield. That’s combined with a payout ratio of approximately 60%. Although that payout ratio is higher than most other stocks on this list, it’s quite low for a REIT.

I’m back on Seeking Alpha after taking the holidays off. Last week I did a deep dive on Coca-Cola FEMSA (NYSE:KOF), the dominant LATAM Coca-Cola bottler. It serves 10 countries and nearly 300M people, growing smartly in both Mexico and Brazil. Oh, and it pays a 4%+ dividend.

If you’re on Seeking Alpha, make sure to follow me there. I write 1-2 articles a week.

Chemtrade Logistics

On the surface, Chemtrade Logistics (TSX:CHE.un) doesn’t seem to check off too many boxes, at least for long-term investors who enjoy dividend income. It sells chemical products to industries like water treatment, food and beverage, oil and gas, industrial processing, and agriculture. It’s a competitive industry, and customers are price conscious. Plus, the company has cut its dividend before.

But things are looking up lately. The stock has more than doubled off 2020 lows and is up smartly over the last year — even after current weakness. EBITDA is projected to hit approximately $450M in 2025, a nice improvement versus 2020-21, when EBITDA didn’t even crack $300M.

Chemtrade’s balance sheet is also much improved. At the end of 2019, it owed more than $1.5B to creditors. These days, that number is comfortably below $850M, and trending lower. Even though the stock pays a succulent 6.4% dividend that cuts into what it can dedicate to debt repayment.

One thing that gives it the flexibility to pay that generous dividend, pay down debt, and reinvest into the business is its low payout ratio. Chemtrade has a payout ratio of approximately 48% based on its distributable cash flow, which is excellent for a stock with such a high payout.

One word of caution, however. Chemtrade has enjoyed much better than average margins over the last couple of years, partially buoyed by low natural gas prices. That’s a major input cost for them, and the company has benefitted. If natural gas marches higher, it throws a big curveball into these numbers. That’s something to consider.

The bottom line

High dividend yield and low payout ratio stocks are excellent choices for dividend investors. Not only do they offer safe, generous yields, but they also offer potential upside as investors realize what these stocks offer.

And when one of these stocks inevitably stumbles, an investor can at least breathe easy knowing that they collected a generous dividend. That helps dull the pain of a poor choice.

My portfolio is stuffed full of stocks that meet this criteria, companies I bought when they were unloved and that I continue to hold today, content in knowing that I’ve already booked some solid capital gains. Plus, I continue to collect generous dividends, payouts that have mostly moved higher over time.

One more thing

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