The document discusses the importance of the dividend payout ratio in evaluating dividend stocks, emphasizing that it can indicate a company's ability to pay and sustain dividends. It warns investors about companies that manipulate dividends to attract attention while potentially masking poor financial health. Examples of risk are illustrated through the case of CenturyLink, showcasing how a high payout ratio combined with declining cash flow can signal trouble for investors.

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3. Hi, My name is Aaron and I‘m with
Dividend Stocks Research, today were
reviewing our recently published article…

4. Dividend Payout Ratio Secrets

5. Sounds boring, doesn’t it?
Look…
There’s no way to convince you the
dividend payout ratio packs the
excitement of aclassic James Bond
movie.

6. (I have a soft spot for Casino Royale.)
But here’s the deal.
If a James Bond movie villain put a gun to
your head, and forced you to choose just
one piece of information...

7. Just one piece of data from all the
financial data out there to pick a great
dividend stock...
You’d be smart to pick the dividend
payout ratio. It could save your life.

8. The dividend payout ratio can help you
find the best dividend paying stocks, and
protect you from a lot of trouble.
You can learn a lot about the dividend
stocks you’re thinking about buying when
you know how to use the dividend payout
ratio.

9. The good news... it’s straightforward stuff.
Common sense.

10. Dividend Payout Ratio Basics

11. Can the company afford to pay a
dividend?
And can it afford to keep on paying it?
Maybe even be able to afford to grow the
dividend in the future?

12. These are the life and death questions the
dividend payout ratio will help you
answer.
Lots of companies plow money into
dividends when they should use the
money for something else.

13. It’s like the guy who leases a BMW 740i
when he should repair his roof.
The guy with the BMW wants to show off,
or make himself feel good.

14. Well, the company wants to show off too.
It wants to catch the attention of investors
with a high dividend.
It might be hoping to lure in new
investors. Maybe it figures it can give its
sagging stock price a shot in the arm with
a high dividend.

15. You see what’s going on here? Some
slick window dressing to try and cover up
a problem.
And the problem is usually tied to
revenue.

16. As an investor, you want to see revenue
coming in to keep the cash flow healthy.

17. The Dividend Payout Ratio and Cash Flow
Dance Together

18. It’s important to have strong cash flow.
Why?
The company needs to have enough cash
on hand to cover all of its expenses and
to pay the dividend.

19. You can check the cash flow statement in
the financials to see what’s happening.
And keep in mind, there’s a difference
between the income statement and the
cash flow statement.

20. The income statement tells you if the
company is making money.
The cash flow statement shows you
what’s happening with money coming in
and going out.

21. It changes over time. (Actually, it changes
constantly, just like the balance in your
personal checking account.)

22. Take a look at the bottom line, and you’ll
see the net increase or decrease for cash
during a set period, usually the most
recent quarter.

23. You’ll see if the cash flow for operating
activities, investing activities, and
financing activities is up or down.

24. The stronger the cash flow, the safer the
dividend. Watch out for wild swings. If
there is a wild swing in one of these three
categories...operating activities, investing
activities, and financing activities...find
out why.

25. For instance, cash flow might be up
quarter to quarter for operating and
financing but down for investing.

26. This might mean that a company has
bought new equipment or a new building.
The cash it keeps on hand for investing
goes down as a result.
When it sells equipment or a building,
cash flow goes up.

27. Here’s something else you might want to
take a look at. See how cash flow grows.
Sometimes, it looks like cash flow grows,
but in reality it doesn’t.

28. No, this isn’t slick, shady accounting. The
numbers are legit, but they reveal
something dangerous...
This is something that should drive you
away if you’re thinking about investing in
the stock.

29. A company can actually go out and
borrow money and use this money to pay
a dividend.
You can discover this when you check out
the financing activities part of the cash
flow statement.

30. It’s kind of low rent, borrowing money to
pay a dividend. A little desperate.
But it happens, and a lot of investors
looking for stocks with the best dividends
never see it.

31. It’s just like a guy borrowing money from
a friend so he can take a date out for a
fancy dinner to try and impress her.
Why would a company do this?

32. Because it’s in trouble. Paying the
dividend becomes a wobbly Hail Mary
pass.
Want to see a company in trouble that is
struggling to pay a dividend?

33. Check out CenturyLink $CTL.
An 83.7% dividend payout ratio, and this
is a technology business that needs to be
investing in research and development.

34. It has infrastructure it needs to maintain
and update.
CenturyLink used to be a model citizen. It
was an S&P Dividend Aristocrat until it
couldn’t grow its dividend anymore.

35. Take a look at what happened to the stock
in early 2013... a dividend investor’s
nightmare...

37. Yes... the stock recovered. But it’s not
exactly in good health. Not with an 83.7%
dividend payout ratio.
When CenturyLink revealed its 2015 first
quarter performance, it reported revenues
were down. So was operating cash flow.

38. Don’t expect CenturyLink to get back to
where it was in the fall of 2014 anytime
soon.

39. This stock is a perfect example of the
trouble you can get into when you run
into a high dividend payout ratio
combined with cash flow that’s heading
south.

40. I’ve mentioned CenturyLink before. It was
the stock I looked at to reveal how you
can try to predict the death of a dividend
aristocrat.

41. And since I wrote about “The Stink Of The
Link” back in the fall...
The stock price has skidded 10%.

42. How To Know You’ve Got A Good
Dividend Payout Ratio

43. So, you might be wondering…
“What should the dividend payout ratio
be? What kind of number should I be
looking for?
Take a look at the best dividend stocks
and you’ll get an idea.

44. The S&P 500 Dividend Aristocrats are
where you’ll find some of best.
Keep in mind these are big, mature
companies with solid balance sheets,
plenty of money, and no need to play
games to spruce up their dividend
payments.

45. That’s why the dividend payout ratios
tend to be fairly low.
Other stocks behave differently.
Some of the best small cap dividend
stocks have a higher dividend.

46. REITs, the Real Estate Investment Trusts,
always have a high dividend payout ratio.
That’s because of tax laws.
But REITs are the only exception to the
rule.

47. Break the rule, invest in a dividend stock
with a dividend payout ratio that’s more
than 50%, maybe 60% if there are special
circumstances and you’re feeling
unusually charitable, and you’re playing
with fire.

48. The Simple Number That Tells You So
Much

49. There you go.
One simple number that cracks open the
window on a company’s inner
workings.Your behind the scenes glimpse
into what’s happening to pay the dividend.

50. Is this the kind of company that behaves
like the guy who won’t spend money to fix
his roof and leases a BMW 740i, or is it
taking care of business?
Not that there’s anything wrong with a
740i.

51. So why not invest in safe stocks that pay
you enough dividends to make the car
payments?

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