Dividend Safety

Dylan Callaghan on Stock Trades, Canada talks about dividend safety. He covers a lot of good points and is well worth the read for people who invest in dividend stocks. It illustrates his points with Enbridge.

I personally check dividend payments in a number of ways. I look at Dividend Payout Ratios (DPR) for Earnings per Share (EPS), Cash Flow per Share (CFPS) and Free Cash Flow. I look at DPRs for the last financial year, for 5 year coverage and possible future. Personally, my favourite is generally the CFPS adjusted for WC.

I do DPR for EPS for the last financial year and also for the past 5 years. You cannot judge a dividend payment ratio against one year as EPS sometimes can be unrepresentative of what the company is really making with checking only one year. EPS might be too high or too low in one year to be representative of the earnings of a company. I also look at the DPR for what analysts suggest is both the future dividends and EPS.

When I DPR for CFPS, I am looking at the Cash Flow from Operations and Cash Flow from Operations adjusted for Working Capital (WC). I do calculate the Working Capital, but I also look at what TD WebBroker says is the WC. For all but financial stocks, this calculation gives you a good idea on if dividends being paid are reasonable. I also look at the 5 year coverage ratios.

I do the DPR for FCF. I do calculate the FCF, and I look at what Morningstar, WebBroker reports and Wall Street Journal (WSJ) says. The problem with FCF is that a lot of the time, the different sources do not agree on what the FCF is. I look at DPR for FCF for the last financial year and for 5 year coverage. I also look at what analysts think the FCF will be in the future in comparison with future dividends.

On my other blog I wrote yesterday about Titanium Transportation Group Inc (TSX-TRR, OTC-PVVTF) ... learn more. Next, I will write about Keyera Corp (TSX-KEY, OTC-KEYUF) ... learn more on Friday, October 29, 2021 around 5 pm.

This blog is meant for educational purposes only and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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