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The following point system will be used to evaluate the safety of a stock’s current dividend. This analysis uses available metrics and data found online and through our stock database. The point of this analysis is to assign a rating as well as point out a company’s current strengths as well as weaknesses related to its ability to pay a dividend. It should not solely be used to determine whether to buy a stock, but it should help point out specific areas of a company’s financials that should be investigated further.

This analysis is used to help determine stocks that we recommend for our 4% Retirement Portfolio Service. Please feel free to contact us to learn more about this analysis or our Retirement Portfolio Service.

Number of consecutive years a dividend has been paid

  • 1 point for more than 9 years
  • 2 points for more than 29 years

Number of consecutive years a dividend has been increased

  • 1 point for more than 9 years
  • 2 points for more than 29 years

Annual dividend cuts in the past 10 years

  • -2 points for each cut

Free cash flow (FCF) payout ratio

  • 1 point for most recent FY less than 75%, -1 point for > 75%
  • 1 point for five year average less than 75%, -1 point for > 75%

Negative free cash flows in the past 10 years

  • -1 point for each year there was a negative free cash flow

Amount of cash on hand to cover annual dividend payment

  • 1 point for every year a company’s dividend is covered by current cash on hand
  • -1 point if there is less cash on hand than one year’s dividend payment

Most recent FY profit margin vs. five year average - This helps us see if competition or other variables are eroding the company’s profitability.

  • 1 point if most recent FY is more than or within 5% of the five-year average profit margin
  • -1 point if most recent FY profit margin has decreased more the 5% vs the five-year average

Debt to total capital - Ratio used to determine how levered a company is.

  • 1 pt if less than or equal to 60%
  • -1 pt if more than 60%

Current ratio - Ratio used to determine how much liquidity a company has.

  • 1 pt if greater than or equal to 1.0
  • -1 pt if less than 1.0

Quick ratio - Ratio used to determine if a company has sufficient liquid assets to meet short-term operating needs.

  • 1 pt if greater than or equal to 1.0
  • -1 pt if less than 1.0

Interest coverage ratio - Ratio used to determine how easily a company can pay interest on outstanding debt.

  • 1 pt if greater than or equal to 1.5
  • -1 pt if less than 1.5

S&P Bond rating of the stock

  • 1 pt for BBB- and up (Investment Grade)
  • -1 pt for BB+ and lower

ISS Governance QuickScore – Score used to identify potential governance risk – the lower the score the better.

  • 1 pt for less than or equal to 5
  • -1 pt for greater than 5

Are you a retired investor looking for a safe and reliable income stream that generates at least 4% income a year? The 4% Portfolio Retirement Service has built just that! Our portfolio is based around financially sound corporations spread across multiple industries that pay a safe and increasing dividend to their shareholders each year.  Find out more

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