How am I certain that a company will keep on paying dividends?
How do I know if a company will keep on paying out its dividends?
The truth is you don’t. If companies cannot give dividends anymore, it may seem bad, but in bad times, this may also mean prudence in managing available funds. Also dividend is another portion of cash flow management. How companies manage dividends at various financial health is really up to the management decision as to whether to continue to give out dividends. What you can do as an investor is to check if the dividend is sustainable based on the following factors: Dividend Pay-out Ratio (Better to be less than 100%), FCF (Dividend pay-out must be less than FCF to be sustainable), Look at operating cash flow and amount paid to shareholders. If amount paid is more than operating cash flow, the dividend pay-out is unsustainable and unlikely to continue long. Past 5 year profits. Ideally, profits should be increasing year on year. This means that company is earning more and they are able to reward shareholders more. Lastly, past 5 year dividend yield/policy. Some companies have policies on the percentage of dividend yield. If dividend yield is very low/policy not present, it is possible for the company to pay low/no dividend.