Silver Wheaton's Dividend Is Safe

Dividend investors know that it pays to follow how much of a company's money goes toward funding its payouts. 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 1 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' health. The FCF payout ratio measures the percentage of free cash flow devoted toward paying the dividend. Again, a ratio greater than 80% could be a red flag.

Each of these ratios reflect dividends paid in the trailing 12 months; yields are the expected forward yield. Let's examine  Silver Wheaton (NYSE: SLW  ) and three of its peers.

Company	Yield	Interest Coverage	EPS Payout Ratio	FCF Payout Ratio
Silver Wheaton	0.4%	N/A	4.3%	12.8%
Silvercorp Metals (NYSE: SVM  )	1%	1954.0	17%	23.5%
Royal Gold (Nasdaq: RGLD  )	0.7%	15.4	34.1%	NM
Franco Nevada (NYSE: FNV  )	1.3%	75.8	39.5%	31.7%

 Source: S&P Capital IQ.

Silver Wheaton has no debt and as such has no interest to cover. Given that its EPS payout ratio and FCF payout ratio are below 15%, you shouldn't have to worry that Cliffs 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 Silver Wheaton to My Watchlist.
• Add Silvercorp Metals to My Watchlist.
• Add Royal Gold to My Watchlist.
• Add Franco Nevada to My Watchlist.