Course 407: High-Yield Stocks
Is the Payout Ratio Rising?
In this course
1 Introduction
2 What Is the Company's Dividend Track Record?
3 Is the Payout Ratio Rising?
4 Are the Company's Sales and Earnings in Line and Stable?
5 Does the Company Generate Consistent Free Cash Flow?
6 Is the Balance Sheet Healthy?
7 How Has the Stock Performed?
8 Is This Stock Expensive Relative to Others in Its Industry?
9 Conclusion: Looking Both Ways

The payout ratio, which shows dividends as a percentage of earnings, is a key indicator of a company's ability to maintain its dividend. A high payout ratio--one that's more than 70%, for example--is normal for a high-yield company, but one that is rising could be a problem. An increasing payout means that unless the firm can boost earnings, dividends will eventually hit a ceiling or even decline. Philip Morris' payout ratio has been relatively stable, staying above 50% over the past five years. In 1998, however, it spiked upward above 70% as the company's earnings dipped. Such spikes can be a cause for concern if the ratio remains high, but Philip Morris' payout ratio has since returned to its normal level.

Next: Are the Company's Sales and Earnings in Line and Stable? >>


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