How do I research a dividend stock?

Question

Accepted Answer

Check five things in order: (1) payout ratio below 70% for non-REIT, (2) 5+ consecutive years of dividend increases, (3) free cash flow covers the dividend with 30%+ headroom, (4) net debt to EBITDA under 3x, (5) earnings growth trending positive over 5 years. If all five pass, the dividend is structurally sound. HeyDividend collapses this into a single safety score. Dividend research is fundamentally a sustainability question, not a return question. You are not trying to predict the stock's price — you are trying to estimate the probability that the dividend you see today will still be there in 12 months. The five-factor checklist above captures most of what matters. Payout ratio tells you how much room there is before a cut becomes mathematically necessary. Streak of increases tells you how seriously management treats the payout. Free cash flow coverage is the most reliable single metric because it ignores accounting noise. Balance sheet metrics tell you whether refinancing risk could force a cut. Earnings trend tells you whether the underlying capacity to pay is growing or shrinking. Beyond the numbers, read the most recent earnings call transcript for the word "dividend" — what management says about the payout often telegraphs the next change. Suspension of buybacks while keeping the dividend is a precursor to a cut roughly 60% of the time.