Dividend cuts are terrible and frustrating. With all the uncertainties around the market, dividend safety is more important than ever. However, avoiding dividend cuts is much more than receiving a constant quarterly payment. Today, we’ll discuss the only way to minimize them.
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- A company that pays a dividend for many years is one thing, but if that dividend doesn’t grow, it is far from safe. There is a big difference between a dividend payer and a dividend grower. Looking a the dividend growth trend is the first way to minimize dividend cuts.
- What type of dividend growth should investors target for a healthy portfolio?
- A high yield can be a sign that something is wrong. The stock price depends on the demand for this stock. More often than not, less demand = higher yield. Why is the stock less in demand?
- Not all high-yield stocks are bad. To avoid cuts, Mike built a quick checklist to ensure their dividend is safe.
- Has the company increased its dividend in the past 5 years? Is the dividend growth trend steady or slowing down?
- How are the payout ratios: above 100% or under control? What’s the payout ratio trend?
- Is there an explanation for a high payout ratio? (Are you using the right calculation?)
- Is the business growing or struggling? How are their EPS and cash flow trends
- At Dividend Stocks Rock, we have a Dividend Safety Score that helps our members and us avoid dividend cuts. Investors can build their own too. To inspire listeners, Mike describes our own DSR rating.
- Does that mean we should sell a stock showing a poor rating? Mike gives two examples of stocks with a poor Dividend Safety Score that he’d sell and two that he’d keep.
After over a decade of double-digit returns, many companies saw their stock price drop this year. Added to inflation and interest uncertainties, it seems complicated to find safe buying opportunities. What about putting your stocks into three categories: Core Holdings, Educated Guesses and Falling Knives?
Can a dividend growth investor keep non-growing dividend stocks? We always insist on dividend growth, but what happens if your holding shows no more: should you keep or sell? Mike has built a 5-rule decision process to help investors in such a case.
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This podcast episode has been provided by Dividend Stocks Rock.