How to identify a company with sustainable dividend pay-outs

by Joshua Benton, Editor, Real Wealth, 18 March 2019
How to identify a company with sustainable dividend pay-outs
Generating consistent income is a wonderful way to grow your wealth. And one of the best ways to make consistent income is with dividends.

However, finding the right companies that can consistently pay you dividends every year isn't all that easy.

Unfortunately, you'll get companies that pay-out most of their profits in dividends. Eventually, they won't be able to sustain this. This happened to blue-chip company Famous Brands over two years ago. The company was forced to scrap its dividend after 13 years of consistent pay-outs and its shares consequently crashed over 20%.

So how can you check if your investments can sustain their dividend pay-outs?

 
Recommended: 
________________________________________
 
Do you want to earn an extra R5,100 per month from simply opening an SMS
  
What I'm about to show you only takes about five minutes to put into action...
 
You won't have to crunch any numbers...
 
You won't have to calculate anything...
 
________________________________________
 
 
Always check this “pay-out” ratio
 
It's called the "dividend-pay-out ratio."
 
By definition, it’s the percentage of earnings the company pays out as dividends, usually on an annual basis. 
 
But as an investor, what you’re looking for in a dividend-pay-out ratio is sustainability.
 
For example, a dividend-pay-out ratio of more than 100% is usually not sustainable.
 
At that pace, the company will eventually run out of money.
 
Likewise, a low dividend-pay-out ratio suggests the company isn't returning much money to shareholders.
 
A sustainable pay-out ratio should be higher than 30% but no more than 60%. This suggests the company pays a generous dividend and still has breathing room in the case of short-term market fluctuations.
 
Recommended:
________________________________________
 
Claim Your FREE Copy of My Book Below
 
Inside you’ll find 10 life-changing ways to build your
income and wealth automatically, including…
 
• How you can pocket an extra R2,000 tax free a month from the one investment most financial advisors ignore
 
• The passive investment plan that will ensure you never ever run out of money 
 
• The secret strategy long term investors use to keep R400,000 in gains out of SARS pocket and in their hands 
 
• The one investment that gives you quadruple the return of any share and is safer than bonds!
 
 
________________________________________
 
Where you can you find the dividend pay-out ratio
 
You can find this number when a company releases its financial statements. 
 
Or to work it out is very simple: If a company reports earnings of 50c and dividends of 25c, its dividend pay-out ratio is 50% ((25c/50c)*100). 
 
The bigger the gap between a company’s dividend and its earnings, the better the chance the company has of maintaining it if earnings come under pressure. 
 
As earnings can sometimes be manipulated through the issuing of new shares, another way to work out dividend pay-out ratio is to use free cash flow per share. The more cash a company generates, the more likely it is to pay out dividends.
 
You’ll also find this in a company’s financial statements.
 
So next time, when you’re looking for consistent dividend-payers to invest in, make sure you check the dividend-payout ratio.
 
See you next week,
Josh Benton,
Managing Editor, Real Wealth
 
P.S. If you want to generate a safe and steady stream of retirement income from dividend-paying stocks, then I urge you to read my recently released, Retire Rich with Dividends Report.


How to identify a company with sustainable dividend pay-outs
Rate this article    
Note: 4.5 of 3 votes
Share

Have a trading or investing question? Click Here


Related articles



Related articles


Watch And Learn




Trending Topics