High-yield dividend stocks can be enticing, with several academic studies showing that stocks yielding above 3% tend to outperform most other asset classes when held for 20 years or longer. However, dividend yield isn’t the most important metric to consider when evaluating stocks with cash or stock distributions.
A recent report by Hartford Funds reveals a crucial insight: Dividend stocks with payout ratios below 75% often perform better in the long run compared to those with higher ratios. The reason for this outperformance lies in the long-term sustainability of distributions, which is critical to harness the power of compounding.
Payout ratio, calculated by dividing the yearly dividend per share by the earnings per share (EPS) offers a window into a company’s ability to maintain its dividend payments over time. A lower ratio suggests more room for sustainable dividend growth and reinvestment in the business.
With this insight in mind, let’s explore three top dividend stocks that boast payout ratios below the 75% threshold and sport yields ranging from a low 4.42% to a high of 5.63%.
1. AT&T
AT&T (NYSE: T), a telecommunications giant with roots tracing back to the telephone’s invention, is one of the largest mobile service and broadband internet providers in the U.S. today.
Leading our list, AT&T boasts an impressive 5.63% yield, the highest among our featured dividend stocks. This generous yield, coupled with a 63.7% payout ratio, positions the company for sustainable, long-term dividend growth.
AT&T’s stock also scans as attractively valued, with a 2026 forward price-to-earnings (P/E) ratio of just 7.86. The telecom giant’s bargain-basement valuation offers a margin of safety in today’s premium-laden market.
While not a potent growth play, with Wall Street projecting a modest 1.7% top-line increase in 2025, AT&T’s entrenched market position, attractive valuation, robust yield, and low payout ratio collectively support its potential for sustainable-income generation and steady share-price appreciation.
2. Bristol Myers Squibb
Bristol Myers Squibb (NYSE: BMY), a global biopharmaceutical powerhouse, focuses on developing innovative medicines in oncology, hematology, immunology, and cardiology.
With a compelling 4.99% yield, Bristol Myers Squibb ranks second on our list from a yield perspective. Its conservative 59.8% payout ratio provides ample room for maintaining and potentially growing its dividend, positioning the company for long-term dividend sustainability.
The stock also appears attractively valued, trading at just 7.6 times 2026 projected earnings. This valuation represents a deep discount relative to both its big pharma peer group and the broader market represented by the benchmark S&P 500, primarily due to concerns about upcoming patent expirations for key revenue drivers like blood thinner Eliquis and cancer immunotherapy Opdivo.
Bristol Myers Squibb’s combination of top-tier yield, low payout ratio, and attractive valuation makes it an intriguing option for dividend investors. However, potential shareholders should closely monitor the company’s ability to bring new growth products to market promptly to offset the impact of these patent expirations.
3. Chevron
Chevron Corporation (NYSE: CVX), a leading global integrated energy company, operates across the full spectrum of the oil and gas industry while also expanding into the realm of renewable fuels.
At present, Chevron offers an attractive 4.42% dividend yield. The company’s conservative 62.2% payout ratio should give investors confidence in its ability to sustain this high yield while continuing to invest in its core operations.
Chevron’s stock currently trades at a forward P/E ratio of 9.4 for 2026, which represents a significant discount compared to the broader S&P 500 index. However, the company’s growth prospects are somewhat tempered by the cyclical nature of the energy sector and ongoing industry shifts.
Speaking to this point, analysts project a slight 2.2% decline in Chevron’s 2025 revenue. Despite this near-term challenge, Chevron has a proven track record of creating shareholder value and possesses the financial strength to navigate the rapidly changing energy landscape.
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George Budwell has positions in AT&T. The Motley Fool has positions in and recommends Bristol Myers Squibb and Chevron. The Motley Fool has a disclosure policy.
3 High-Yield Dividend Stocks With Payout Ratios Below 75% was originally published by The Motley Fool
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