Income Research · Dividend Safety

Dividend Safety Ratings: Is Your Dividend at Risk of Being Cut?

High yield means nothing if the dividend gets cut. We grade every payout A through F based on payout ratio, FCF coverage, and consecutive payment streak.

Why Dividend Cuts Destroy Portfolio Returns

For income investors, a dividend cut isn't just a reduction in cash flow — it typically triggers a 20-40% stock price decline as income-focused funds and investors sell their positions. The double hit of lower income and capital loss makes dividend cuts one of the most destructive events for a portfolio.

The good news: dividend cuts rarely come without warning. The signals are usually visible in the financial statements 2-4 quarters before the announcement. Our grading system is designed to catch these signals early.

How We Grade Dividend Safety

Our dividend safety grade combines three factors:

1. Payout Ratio (What percentage of earnings goes to dividends?)

  • Below 60%: healthy buffer for growth and downturns
  • 60-80%: acceptable for stable, low-growth businesses
  • 80-100%: elevated risk — little room for error
  • Above 100%: unsustainable — paying out more than earned

2. Free Cash Flow Coverage (Can the company actually afford the dividend?)

Earnings can be manipulated with accounting. Free cash flow is harder to fake. We divide FCF by total dividends paid:

  • Above 1.5x: strong coverage — dividend well-funded
  • 1.0-1.5x: adequate but thin
  • Below 1.0x: the company is funding dividends from debt or savings

3. Payment Streak (How long has the company been paying?)

A long streak of consecutive payments (and especially consecutive increases) signals management commitment to the dividend:

  • 10+ years: strong track record — Dividend Aristocrat territory
  • 5-10 years: solid commitment
  • Under 5 years: limited track record or recent restoration after a cut

The Dividend Trap: High Yield, Low Safety

The most dangerous combination in dividend investing is a stock with a very high yield (6%+) and a low safety grade (D or F). This is the "dividend trap" — the yield looks attractive, but the market is pricing in a high probability of a cut.

Classic dividend trap signals:

  • Yield suddenly jumps above historical average (because price dropped)
  • Payout ratio above 100% for two or more quarters
  • Free cash flow turned negative while dividend payments continue
  • Debt is increasing while dividends remain unchanged

Our grading system catches all of these patterns. Every stock with a dividend gets a grade from A to F, visible on both the listing page and the individual analysis page.

Matching stocks

Stocks that meet this criteria

View all stocks →
AAPL $273.05

Apple Inc.

Z-Score 9.75
Fair Value $223.83
Moat ★★★½☆
Div Safety A
Safe Zone MoS: -22.0%
ABBV $203.71

AbbVie Inc.

Z-Score 2.11
Fair Value $316.55
Moat ★★½☆☆
Div Safety B
Caution MoS: 35.6%
ABT $96.00

Abbott Laboratories

Z-Score 2.94
Fair Value $105.96
Moat ★★☆☆☆
Div Safety A
Caution MoS: 9.4%
ACN $195.06

Accenture plc

Z-Score 3.57
Fair Value $324.67
Moat ★★★½☆
Div Safety A
Safe Zone MoS: 39.9%
AMGN $350.16

Amgen Inc.

Z-Score 1.48
Fair Value $255.37
Moat ★★★☆☆
Div Safety A
High Risk MoS: -37.1%
BLK $1,048.42

BlackRock, Inc.

Z-Score 1.37
Fair Value $658.75
Moat ★★☆☆☆
Div Safety A
High Risk MoS: -59.2%
CAT $798.40

Caterpillar Inc.

Z-Score 5.67
Fair Value $325.23
Moat ★★☆☆☆
Div Safety A
High Risk MoS: -145.5%
CLX $102.17

The Clorox Company

Z-Score 2.78
Fair Value $124.08
Moat ★★½☆☆
Div Safety B
Caution MoS: 17.7%
COP $116.45

ConocoPhillips

Z-Score 2.97
Fair Value $91.45
Moat ★★☆☆☆
Div Safety B
High Risk MoS: -27.3%
CPB $21.26

The Campbell's Company

Z-Score 1.54
Fair Value $24.80
Moat ★★½☆☆
Div Safety B
Caution MoS: 14.3%
DAL $71.21

Delta Air Lines, Inc.

Z-Score 1.30
Fair Value $112.79
Moat ★★☆☆☆
Div Safety B
High Risk MoS: 36.9%
DE $594.52

Deere & Company

Z-Score 2.49
Fair Value $420.36
Moat ★★☆☆☆
Div Safety A
High Risk MoS: -41.4%
DIS $106.30

The Walt Disney Company

Z-Score 1.54
Fair Value $83.95
Moat ★★☆☆☆
Div Safety A
High Risk MoS: -26.6%
DVN $44.94

Devon Energy Corporation

Z-Score 1.64
Fair Value $110.06
Moat ★★☆☆☆
Div Safety A
High Risk MoS: 59.2%
EOG $129.16

EOG Resources, Inc.

Z-Score 3.18
Fair Value $125.52
Moat ★★☆☆☆
Div Safety B
Caution MoS: -2.9%
GILD $135.87

Gilead Sciences, Inc.

Z-Score 3.02
Fair Value $128.21
Moat ★★☆☆☆
Div Safety B
Caution MoS: -6.0%
GIS $35.28

General Mills, Inc.

Z-Score 2.36
Fair Value $44.12
Moat ★★★☆☆
Div Safety A
Caution MoS: 20.0%
HD $350.99

The Home Depot, Inc.

Z-Score 6.02
Fair Value $244.73
Moat ★★★★☆
Div Safety A
Safe Zone MoS: -43.4%
HRL $21.33

Hormel Foods Corporation

Z-Score 1.75
Fair Value $22.42
Moat ★★☆☆☆
Div Safety B
High Risk MoS: 4.9%
HSY $191.45

The Hershey Company

Z-Score 4.94
Fair Value $282.53
Moat ★★★★☆
Div Safety B
Safe Zone MoS: 32.2%
JNJ $230.69

Johnson & Johnson

Z-Score 4.79
Fair Value $203.28
Moat ★★★½☆
Div Safety B
Safe Zone MoS: -13.5%
JPM $316.99

JPMorgan Chase & Co.

Z-Score 0.32
Fair Value $0.00
Moat ★★☆☆☆
Div Safety B
High Risk MoS: -100.0%
KMI $31.94

Kinder Morgan, Inc.

Z-Score 1.21
Fair Value $22.78
Moat ★★☆☆☆
Div Safety B
High Risk MoS: -40.2%
KO $75.48

The Coca-Cola Company

Z-Score 3.83
Fair Value $65.76
Moat ★★★★☆
Div Safety A
Safe Zone MoS: -14.8%
LOW $253.29

Lowe's Companies, Inc.

Z-Score 3.94
Fair Value $209.04
Moat ★★★☆☆
Div Safety A
Caution MoS: -21.2%
MA $516.65

Mastercard Incorporated

Z-Score 9.75
Fair Value $644.55
Moat ★★★½☆
Div Safety A
Safe Zone MoS: 19.8%
MCD $306.94

McDonald's Corporation

Z-Score 5.19
Fair Value $252.88
Moat ★★★½☆
Div Safety B
Safe Zone MoS: -21.4%
MMM $151.40

3M Company

Z-Score 2.49
Fair Value $67.92
Moat ★★☆☆☆
Div Safety A
High Risk MoS: -122.9%
MRK $117.10

Merck & Co., Inc.

Z-Score 2.86
Fair Value $173.52
Moat ★★☆☆☆
Div Safety A
Caution MoS: 32.5%
MSFT $418.07

Microsoft Corporation

Z-Score 9.19
Fair Value $417.54
Moat ★★★★½
Div Safety A
Safe Zone MoS: -0.1%
MU $448.42

Micron Technology, Inc.

Z-Score 13.53
Fair Value $179.14
Moat ★★☆☆☆
Div Safety B
High Risk MoS: -150.3%
NKE $46.48

NIKE, Inc.

Z-Score 2.93
Fair Value $32.18
Moat ★★½☆☆
Div Safety B
Caution MoS: -44.4%
NVDA $202.06

NVIDIA Corporation

Z-Score 93.80
Fair Value $129.90
Moat ★★★☆☆
Div Safety B
Caution MoS: -55.5%
PEP $156.99

PepsiCo, Inc.

Z-Score 3.85
Fair Value $153.33
Moat ★★★★☆
Div Safety B
Safe Zone MoS: -2.4%
PSX $155.75

Phillips 66

Z-Score 3.42
Fair Value $173.50
Moat ★★☆☆☆
Div Safety B
Caution MoS: 10.2%
RTX $195.79

RTX Corporation

Z-Score 2.52
Fair Value $136.77
Moat ★½☆☆☆
Div Safety A
High Risk MoS: -43.1%
SBUX $98.95

Starbucks Corporation

Z-Score 3.10
Fair Value $53.35
Moat ★★½☆☆
Div Safety B
Caution MoS: -85.5%
SLB $52.20

SLB N.V.

Z-Score 3.08
Fair Value $37.90
Moat ★★½☆☆
Div Safety A
Caution MoS: -37.7%
SO $93.51

The Southern Company

Z-Score 0.99
Fair Value $92.50
Moat ★½☆☆☆
Div Safety B
High Risk MoS: -1.1%
SYY $76.26

Sysco Corporation

Z-Score 4.76
Fair Value $77.93
Moat ★★☆☆☆
Div Safety A
Caution MoS: 2.1%
TGT $130.18

Target Corporation

Z-Score 2.97
Fair Value $112.44
Moat ★★★☆☆
Div Safety A
Caution MoS: -15.8%
TJX $159.69

The TJX Companies, Inc.

Z-Score 3.80
Fair Value $116.03
Moat ★★★½☆
Div Safety A
Safe Zone MoS: -37.6%
UNP $252.18

Union Pacific Corporation

Z-Score 3.90
Fair Value $158.91
Moat ★★★☆☆
Div Safety A
Caution MoS: -58.7%
UVV $51.66

Universal Corporation

Z-Score 2.98
Fair Value $41.36
Moat ★★☆☆☆
Div Safety B
High Risk MoS: -24.9%
V $313.94

Visa Inc.

Z-Score 7.99
Fair Value $394.98
Moat ★★★½☆
Div Safety A
Safe Zone MoS: 20.5%
VLO $226.28

Valero Energy Corporation

Z-Score 4.99
Fair Value $392.49
Moat ★★☆☆☆
Div Safety A
Safe Zone MoS: 42.4%
WFC $81.97

Wells Fargo & Company

Z-Score 0.24
Fair Value $0.00
Moat ★★☆☆☆
Div Safety B
High Risk MoS: -100.0%
WM $224.18

Waste Management, Inc.

Z-Score 2.68
Fair Value $163.88
Moat ★★½☆☆
Div Safety A
Caution MoS: -36.8%
WMT $127.92

Walmart Inc.

Z-Score 5.71
Fair Value $72.56
Moat ★★★½☆
Div Safety A
Safe Zone MoS: -76.3%
XOM $147.68

Exxon Mobil Corporation

Z-Score 3.53
Fair Value $126.71
Moat ★★☆☆☆
Div Safety B
High Risk MoS: -16.6%
FAQ

Common questions

What does each dividend safety grade mean?

Grade A means very safe — low payout ratio, strong free cash flow coverage, and a long streak of consecutive increases. Grade B is safe with adequate coverage. Grade C is borderline — elevated payout ratio or inconsistent FCF. Grade D is unsafe — payout exceeds earnings or FCF is negative. Grade F means a cut appears imminent or has already occurred.

What payout ratio is considered safe?

Generally, a payout ratio below 60% is considered healthy for most companies. Between 60-80% is acceptable for stable businesses like utilities and REITs. Above 80% is elevated risk, and above 100% means the company is paying out more than it earns — which is unsustainable long-term.

Is a high dividend yield a warning sign?

It can be. When a stock's price drops significantly, the yield goes up mathematically even though the dividend amount hasn't changed. A yield above 6-7% for a non-REIT company often signals that the market expects a dividend cut. Always check the payout ratio and FCF coverage alongside yield.

How do you calculate free cash flow coverage?

FCF coverage = Free Cash Flow / Total Dividends Paid. A ratio above 1.5x means the company generates 50% more cash than it needs to cover the dividend. Below 1.0x means the company is borrowing or using savings to pay the dividend — a red flag.

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