Saturday, June 06, 2009

Evaluating Dividend Sustainability

Below is a table of factors one can use to evaluate the potential sustainability of a company's dividend. These factors should be compared on a trend basis over time as well as compared to the industry in which the company operates.


Dividend Safety Signs and Warning Flags ($)
American Association of Individual Investors
By: Maria Crawford Scott, Editor, AAII Journal
June 2009


Bill G. said...

What a valuable tool to dividend investors like myself, Thanks!

NoFreeCake said...

Well, I used AAII's stock screener with most of the above criteria. I did not do the year-year analysis of ratios and skippped one or two others that did not have easy and clear pre-defined fields to screen. For dividend history, I looked back 6 years. For other growth ratios I used a 5 year period.

You might be disheartened to know that even with this more lax criteria, only 40 companies passed. Of these, only 17 had a yield greater than 2.5%.

After further analysis (historical price action, year-year trends, "story", and such), I'd expect this list to be reduced further. Not enough companies to build a diversified portfolio. It always bugs me when someone says "follow these rules for success" and it's impossible.

Bill G. said...

In Response to NoFreeCake: Mechanics never use just one tool, they have a toolbox full. No one is suggesting a single approach or "one size fits all" type of investment strategy. It's simply a starting point.