How to determine if your dividends are safe | Value Investing News

How to determine if your dividends are safe

As dividend growth investors, our goal is to buy shares in a company that will shower us with cash for decades to come.

One of the important things to look out for in our evaluation of companies involves determining the safety of that dividend payment.

A quick check to determine dividend safety is by looking at the dividend payout ratio. This metric shows what percentage of earnings are paid out in dividends to shareholders.

In general, the lower this metric, the better. As a quick rule of thumb, I view dividend payout ratios below 60% as sustainable. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

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