Understanding the Dividend Safety Indicator
The Dividend Safety indicator assesses how sustainable a company's dividend payment is relative to its earnings. A safe dividend has room to grow and can weather economic downturns.
What It Measures
This indicator is primarily based on the payout ratio — the percentage of earnings paid out as dividends. Lower payout ratios indicate more earnings are retained for growth, debt reduction, or future dividend increases.
How to Read the Status
| Status | Payout Ratio | Meaning |
|---|---|---|
| 🟢 Good | ≤ 60% | Conservative — plenty of room for growth and protection against earnings dips |
| 🟡 Neutral | 60-80% | Moderate — healthy for mature companies but watch for changes |
| 🔴 Bad | > 80% | High risk — limited buffer if earnings decline |
Why It Matters
Companies paying out more than they earn must eventually cut the dividend or take on debt. A payout ratio above 90% triggers our high-risk flag, as it suggests the dividend may not be sustainable.
What to Do
- Good: Dividend appears well-covered. Still check other indicators for a complete picture.
- Neutral: Monitor earnings reports. Any decline could pressure the dividend.
- Bad: Investigate further. Check FCF coverage — some companies can sustain high payout ratios with strong cash flow.