Monsanto's Dividend Is Safe

As a dividend investor, it pays to follow how much of a company's money goes toward funding its dividend. A nice yield now won't matter much if the company can't keep making those payments going forward.

Here, we'll highlight a given company and its closest competitors to see just how safe their dividends are, with a little help from three crucial tools:

• The interest coverage ratio, or earnings before interest and taxes, divided by interest expense. The interest coverage ratio measures a company's ability to pay the interest on its debt. An interest coverage ratio less than 1.5 is questionable; a number less than one means that the company is not bringing in enough money to cover its interest expenses.

• The EPS payout ratio, or dividends per share divided by earnings per share. The EPS payout ratio measures the percentage of earnings that go toward paying the dividend. A ratio greater than 80% is worrisome.

• The FCF payout ratio, or dividends per share divided by free cash flow per share. Earnings alone don't always paint a complete picture of a business's health. The FCF payout ratio measures the percent of free cash flow devoted toward paying the dividend. Again, a ratio greater 80% could be a red flag.

Each of these ratios reflects dividends paid in the trailing 12 months while yields are the expected forward yield. Let's examine Monsanto (NYSE: MON  ) and three of its peers.

Company	Yield	Interest Coverage	EPS Payout Ratio	FCF Payout Ratio
Monsanto	1.5%	15.3	39.0%	33.2%
Air Products & Chemicals (NYSE: APD  )	2.5%	13.0	40.7%	71.6%
DuPont (NYSE: DD  )	3.0%	7.1	45.9%	(297.8%)
Dow Chemical (NYSE: DOW  )	2.9%	2.7	32.4%	93.2%

Source: Capital IQ, a division of Standard & Poor's.

With an interest coverage of 15.3, Monsanto covers every $1 in interest expenses with more than $15 in operating earnings. Given its EPS payout ratio and FCF payout ratio are below 40%, you shouldn't have to worry that Monsanto will need to cut its dividend anytime soon.

Another tool for better investing
Most investors don't keep tabs on their companies. That's a mistake. If you take the time to read past the headlines and crack a filing now and then, you're in a much better position to spot potential trouble early. We can help you keep tabs on your companies with My Watchlist, our free, personalized stock-tracking service.

• Add Monsanto to My Watchlist.
• Add Air Products & Chemicals to My Watchlist.
• Add DuPont to My Watchlist.
• Add Dow Chemical to My Watchlist.