Master dividend investing fundamentals with these metric definitions. Understanding these terms helps you screen for sustainable, growing income streams:
What is dividend yield?
Dividend yield is annual dividend income as a percentage of the current stock or ETF price. A 4% yield means you receive $4 per year for every $100 invested. Dividend stocks typically yield 2-6%, while high-yield investments may exceed 6%. Always verify yield sustainability with payout ratio and dividend growth metrics.
What is payout ratio?
Payout ratio measures the percentage of earnings paid as dividends. A 60% payout ratio means 60% of earnings go to dividends, 40% reinvested. Lower ratios (under 60%) indicate safety and growth potential. High ratios (over 80%) may signal limited growth or future dividend cuts. For ETFs, this reflects the weighted average of holdings.
What is FCF payout ratio?
Free Cash Flow (FCF) payout ratio measures dividends as a percentage of free cash flow instead of earnings. FCF is more reliable than earnings because it represents actual cash. A 50% FCF payout ratio means the company pays half its free cash as dividends. Under 75% is generally sustainable.
What is dividend growth YoY?
Year-over-year (YoY) dividend growth measures the percentage increase from last year's dividend. A 10% YoY growth means dividends increased by 10% versus the prior year. Consistent growth (5-15% annually) indicates strong fundamentals and management commitment to shareholders. Negative growth signals potential problems.
What is dividend CAGR 5Y?
Compound Annual Growth Rate (CAGR) over 5 years shows the smoothed annual dividend growth rate. A 12% CAGR means dividends grew an average of 12% per year over five years. CAGR provides better perspective than YoY for evaluating long-term dividend growth trends. Look for 7-15% CAGR for strong dividend growers.
What does years of dividend growth indicate?
Years of consecutive dividend growth measures how many years a company has increased dividends without cuts. Dividend Aristocrats maintain 25+ years of growth. 10+ years demonstrates recession resilience and management discipline. Longer streaks indicate stronger commitment to dividend growth, though past performance doesn't guarantee future increases.
Dividend Sustainability Checklist: Red Flags & Green Flags
Not all high yields are safe. Use this checklist to screen for sustainable dividends and avoid dividend traps:
Green Flags: Signs of Sustainable Dividends
Payout ratio under 60% (stocks) or under 80% (ETFs)
FCF payout ratio under 75% provides cushion
5+ years of consecutive dividend growth
Positive dividend CAGR 5Y (5-15% ideal)
Debt/Equity under 1.0 for financial flexibility
Quarterly or monthly payouts for consistent income
Red Flags: Warning Signs of Dividend Risk
Payout ratio over 80% leaves no room for growth or safety
FCF payout ratio over 100% means paying more than generated
Trading commissions for each position (often $0 now)
Annual expense ratio (0.08-0.60%); built into NAV
How to Screen for Dividend Investments
Master systematic dividend screening with these step-by-step guides. Whether you're building a retirement income portfolio or seeking dividend growth, these techniques help you find sustainable, growing dividend payers:
Frequently Asked Questions About Dividend Screening
Common questions about dividend investing and using the dividend screener:
How do I use the dividend screener?
Select filters for dividend yield, growth rate, payout ratio, and market cap. Click column headers to sort results. Switch between stocks and ETFs using the tabs at the top. Stocks have 5 analytical views (Overview, Dividends, Sustainability, Valuation, Performance) while ETFs have 4 views (Overview, Dividends, Fund Details, Performance) tailored to each security type.
What is a healthy dividend payout ratio?
A healthy payout ratio typically ranges from 30% to 60% of earnings. Ratios under 50% indicate strong dividend safety with room for growth. Ratios between 50-70% are sustainable for mature companies. Ratios above 80% may signal risk of dividend cuts unless supported by stable cash flows (like REITs or utilities).
How do I identify sustainable dividend stocks?
Filter by payout ratio under 70%, check dividend growth YoY for consistent increases, review debt-to-equity ratio (under 1.5 preferred), and verify FCF payout ratio on the Sustainability tab. Stocks with growing dividends, manageable debt, and earnings coverage typically maintain sustainable payouts.
What is dividend yield and how is it calculated?
Dividend yield is the annual dividend payment divided by the current stock price, expressed as a percentage. For example, a stock paying $2 annually at $50 per share has a 4% yield. Use the yield filter to find stocks in your desired income range (2-5% for balanced, 5%+ for high yield).
What is the difference between dividend stocks and dividend ETFs?
Dividend stocks are individual company shares that pay dividends directly. Dividend ETFs are funds holding multiple dividend-paying stocks, providing instant diversification. ETFs typically have lower volatility and more consistent payouts but include expense ratios. Stocks offer higher potential returns but carry individual company risk.
How do I find high-yield dividend investments?
Use the Dividend Yield filter and select higher ranges (5%+). Switch to the Dividends view tab to see yield alongside payout ratio and growth. Cross-reference with the Sustainability tab to verify high yields are supported by fundamentals. Be cautious of extremely high yields (10%+) which may indicate distress or pending cuts.
What dividend metrics indicate financial health?
Key health indicators include: payout ratio under 70%, positive dividend growth YoY, debt-to-equity under 1.5, debt-to-EBITDA under 3, and FCF payout ratio under 80%. The Sustainability tab shows these metrics together, helping identify companies that can maintain and grow dividends long-term.
Should I prioritize dividend yield or dividend growth?
It depends on your goals. High current yield (4-6%+) suits income-focused investors needing cash flow now. Dividend growth (lower yield but consistent increases) suits long-term investors building future income. Many investors balance both: moderate yield (2-4%) with proven growth history of 5-10% annually.
How do I screen for monthly dividend stocks?
Use the Frequency filter and select Monthly (12/year). Monthly payers are often REITs, BDCs, or certain ETFs. Switch to the Dividends view tab to see payout frequency alongside yield and ex-dividend dates. Verify sustainability with payout ratio and debt metrics before investing.
What is ex-dividend date and why does it matter?
The ex-dividend date is the cutoff for dividend eligibility. Buy before this date to receive the upcoming dividend payment. The Dividends tab shows ex-dividend dates for all securities. Sort by this column to find stocks with upcoming dividends or plan purchase timing around dividend capture strategies.
How do I compare dividend stocks vs dividend ETFs?
Use the tabs at the top to switch between Dividend Stocks and Dividend ETFs. Compare yields, growth rates, and payout frequency across both. ETFs add expense ratio consideration (favor under 0.50%). Stocks require analyzing individual company fundamentals. Both tabs share the same view structure for easy comparison.
How do I identify dividend cut risk?
Warning signs include: payout ratio above 80% (company paying more than it earns), negative dividend growth YoY (recent cuts), high debt-to-equity (above 2.0), declining revenue or earnings trends, and extremely high yields (10%+) often caused by falling stock prices. Use the Sustainability tab to check these metrics together and identify stocks at risk of reducing dividends.
What are dividend aristocrats and how do I find them?
Dividend aristocrats are S&P 500 companies that have increased dividends for 25+ consecutive years. To find them in the screener: filter for positive Dividend Growth YoY, sort by dividend growth descending, and look for companies with consistent multi-year growth patterns. These stocks typically have lower yields but exceptional dividend safety and reliability.
What is earnings coverage and why does it matter?
Earnings coverage (inverse of payout ratio) shows how many times earnings can cover dividend payments. A 50% payout ratio means 2x earnings coverage. Higher coverage indicates stronger dividend safety. Use the Sustainability tab to view payout ratio and FCF payout together - both should be under 70-80% for sustainable dividends with adequate earnings coverage.