Behind the Scenes
Our Dividend Safety Scores were designed to help dividend investors like you identify and avoid companies that appear to be riskier sources of income — without making you get into the weeds of complicated financial statements or stay on top of the latest news for all of your holdings.
We have spent countless hours and tens of thousands of dollars on financial data to deeply understand the various factors most commonly resulting in dividend cuts.
Simply put, companies that end up cutting their dividends have typically been under stress for a while and need to preserve cash. They have likely experienced a meaningful decline in earnings, their balance sheets might be strained with too much debt, and their payout ratios have often jumped to levels that provide less financial flexibility.
Our Dividend Safety Score system takes into account more than a dozen fundamental metrics that influence a company's ability to continue paying dividends. Some of the metrics scrubbed are a company's:
- Payout ratios
- Debt levels and coverage metrics
- Recession performance
- Dividend longevity
- Industry cyclicality
- Free cash flow generation
- Recent sales and earnings growth
- Return on invested capital
Our scoring system turns over every stone. For example, off-balance sheet debt such as pension obligations is evaluated, forward-looking analyst estimates are reviewed to see if anything is changing for the worse, and industry-specific metrics are utilized when appropriate (such as funds from operations for REITs). We take our scores very seriously.
Dividend Safety Scores are available for about 1,000 stocks, update daily using professional data feeds, and primarily change when new earnings reports are released. Scores are kept completely up-to-date to ensure you always have the most timely and accurate information in front of you.
Per the legend below, scores range from 0 to 100. A score of 50 represents a borderline safe payout, but conservative investors are best off sticking with companies that score over 60 for Dividend Safety.
A low score does not necessarily mean a dividend cut is imminent, but it indicates that the company possesses qualities that could ultimately jeopardize its payout in the future (and/or result in substantial capital losses).
To date, our scores have caught over 98% of dividend cuts in advance, and you can view their complete real-time track record here.
By reviewing and monitoring a company's Dividend Safety Score, you can steer clear of the riskier dividend-payers to improve their chances of generating safer income and preserving capital over the long term.
Our Dividend Safety Scores are located throughout our website, making it easy to pull up an individual company's score or review how all of your holdings score in our portfolio tool.