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If you are considering dividend stocks as a source of income, one thing to keep in mind is company debt. High levels of debt can put a wedge between firm value and the value to shareholders by directing cash flows towards high interest payments, and by decreasing financial flexibility. After all, debtholders are always paid before dividends.

We ran a screen on low-debt dividend stocks, with most recent quarter total debt to assets below 0.20 and paying a dividend yield above 2%. We also controlled for sustainable payout ratios below 35%. We then screened for those trading at significant discounts relative to target price, possibly indicating undervalued opportunities.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.



We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.

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Do you think these companies pay reliable dividends? Use this list as a starting-off point for your own analysis.

List sorted by potential upside implied by target price.

1. Methode Electronics Inc. (NYSE:MEI): Diversified Electronics Industry. Market cap of $393.57M. Dividend yield at 2.64%, payout ratio at 27.50%. MRQ total debt to assets at 0.00. Target price at $14.00 vs. current price at $10.64 (implies a potential upside of 31.58%). The stock has gained 9.92% over the last year.

2. The Bank of New York Mellon Corporation (NYSE:BK):
Asset Management Industry. Market cap of $30.97B. Dividend yield at 2.09%, payout ratio at 22.04%. MRQ total debt to assets at 0.09. Target price at $32.45 vs. current price at $24.94 (implies a potential upside of 30.12%). Might be undervalued at current levels, with a PEG ratio at 0.89, and P/FCF ratio at 12.43. The stock has gained 0.48% over the last year.

3. Meredith Corp. (NYSE:MDP): Publishing Industry. Market cap of $1.34B. Dividend yield at 3.47%, payout ratio at 30.39%. MRQ total debt to assets at 0.13. Target price at $37.80 vs. current price at $29.51 (implies a potential upside of 28.09%). The stock is a short squeeze candidate, with a short float at 30.39% (equivalent to 14.52 days of average volume). The stock has gained 0.96% over the last year.

4. CNOOC Ltd. (NYSE:CEO): Independent Oil & Gas Industry. Market cap of $100.25B. Dividend yield at 2.06%, payout ratio at 33.15%. MRQ total debt to assets at 0.10. Target price at $286.61 vs. current price at $224.39 (implies a potential upside of 27.73%). The stock has gained 41.51% over the last year.

5. Artio Global Investors Inc. (NYSE:ART): Asset Management Industry. Market cap of $622.02M. Dividend yield at 2.31%, payout ratio at 15.90%. MRQ total debt to assets at 0.14. Target price at $13.29 vs. current price at $10.44 (implies a potential upside of 27.26%). The stock is a short squeeze candidate, with a short float at 8.34% (equivalent to 9.26 days of average volume). It's been a rough couple of days for the stock, losing 9.38% over the last week.

6. Protective Life Corp. (NYSE:PL): Life Insurance Industry. Market cap of $2.12B. Dividend yield at 2.48%, payout ratio at 17.77%. MRQ total debt to assets at 0.04. Target price at $28.63 vs. current price at $22.61 (implies a potential upside of 26.60%). This is a risky stock that is significantly more volatile than the overall market (beta = 2.99). The stock has gained 12.6% over the last year.

7. Applied Materials Inc. (NASDAQ:AMAT):
Semiconductor Equipment & Materials Industry. Market cap of $16.73B. Dividend yield at 2.53%, payout ratio at 21.57%. MRQ total debt to assets at 0.02. Target price at $15.91 vs. current price at $12.69 (implies a potential upside of 25.39%). The stock has gained 6.37% over the last year.

8. The Allstate Corporation (NYSE:ALL):
Property & Casualty Insurance Industry. Market cap of $14.85B. Dividend yield at 2.97%, payout ratio at 21.20%. MRQ total debt to assets at 0.05. Target price at $35.50 vs. current price at $28.40 (implies a potential upside of 25.0%). The stock has gained 6.41% over the last year.

9. Autoliv, Inc. (NYSE:ALV): Auto Parts Industry. Market cap of $6.19B. Dividend yield at 2.47%, payout ratio at 0.24%. MRQ total debt to assets at 0.12. Target price at $86.85 vs. current price at $69.80 (implies a potential upside of 24.43%). The stock is currently stuck in a downtrend, trading 8.41% below its SMA20, 8.41% below its SMA50, and 9.05% below its SMA200. The stock has gained 38.14% over the last year.

10. Maiden Holdings, Ltd. (NASDAQ:MHLD): Property & Casualty Insurance Industry. Market cap of $682.88M. Dividend yield at 2.96%, payout ratio at 26.09%. MRQ total debt to assets at 0.07. Target price at $11.60 vs. current price at $9.47 (implies a potential upside of 22.49%). The stock has gained 49.13% over the last year.

11. Selective Insurance Group Inc. (NASDAQ:SIGI): Property & Casualty Insurance Industry. Market cap of $894.03M. Dividend yield at 3.15%, payout ratio at 33.30%. MRQ total debt to assets at 0.05. Target price at $20.00 vs. current price at $16.55 (implies a potential upside of 20.85%). The stock has gained 15.09% over the last year.

12. Microsoft Corporation (NASDAQ:MSFT):
Application Software Industry. Market cap of $228.19B. Dividend yield at 2.37%, payout ratio at 25.78%. MRQ total debt to assets at 0.12. Target price at $32.58 vs. current price at $27.06 (implies a potential upside of 20.39%). The stock has had a good month, gaining 10.58%.

*Target price data and total debt to assets data sourced from Screener.co, all other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 12 Low-Debt Dividend Stocks Undervalued by Target Price