Goldman today offers a salutary lesson in a topic that MB has been pounding away at for years, that is, which are the real dividend stocks on the bourse, not he just the one’s that are pretending to be? Readers will recall that we’ve railed against unscrupulous brokers and opportunistic firms – like miners and banks – as they tried to shoehorn investors into unsustainable payout ratios for cyclical stocks. We are now seeing the fruits of that as dividends get cut across cyclical segments.
To help investors isolate the opportunities from the yield traps, we refresh our sustainable dividend screen. This screen uses six measures that we believe best indicate dividend sustainability. We deem those firms that fail the highest number of these criteria as having the highest dividend cut risk. While our approach may suffer from firms just failing to pass certain thresholds, we believe it provides a broad perspective on the issues likely to affect a firm’s ability to continue to pay current dividend levels:
1) Does the firm have a high pay out ratio? Stocks where consensus expects the pay out ratio next year to be >75% receive a strike.
