Dividend investing is a tried-and-true strategy for generating strong, steady returns in economies both good and bad. But as corporate America's slew of dividend cuts and suspensions over the past few years has demonstrated, it's not enough simply to buy a high yield. You also need to make sure those payouts are sustainable.

Let's examine how Titanium Metals (NYSE: TIE) stacks up. In this series, we consider four critical factors investors should examine in every dividend stock. We'll then tie it all together to look at whether Titanium Metals is a dividend dynamo or a disaster in the making.

1. Yield
First and foremost, dividend investors like a large forward yield. But if a yield gets too high, it may reflect investors' doubts about the payout's sustainability. If investors had confidence in the stock, they'd be buying it, driving up the share price and shrinking the yield.

Titanium Metals yields 1.9%, slightly lower than the S&P 500's 2.1%.

2. Payout ratio
The payout ratio might be the most important metric for judging dividend sustainability. It compares the amount of money a company paid out in dividends last year to the earnings it generated. A ratio that's too high -- say, greater than 80% of earnings -- indicates that the company may be stretching to make payouts it can't afford, even when its dividend yield doesn't seem particularly high.

Titanium Metals has a modest payout ratio of 25%.

3. Balance sheet
The best dividend payers have the financial fortitude to fund growth and respond to whatever the economy and competitors throw at them. The interest coverage ratio indicates whether a company is having trouble meeting its interest payments -- any ratio less than 5 is a warning sign. Meanwhile, the debt-to-equity ratio is a good measure of a company's total debt burden.

Titanium Metals doesn't carry any debt, which is quite unusual for its industry. Although its peers have somewhat low interest coverage rates, that's because operating profits are down across the board in the titanium industry since 2008. Moderate debt-to-equity ratios are the norm:

Company

Debt-to-Equity Ratio

Interest Coverage

Titanium Metals 0% N/A
Allegheny Technologies 59% 5 times
Carpenter Technology 52% 8 times
RTI International Metals 25% 2 times

Source: S&P Capital IQ.

4. Growth
A large dividend is nice; a large growing dividend is even better. To support a growing dividend, we also want to see earnings growth.

Unfortunately, that hasn't quite been the case for Titanium Metals or its peers, though profits for everyone are finally beginning to rebound after plunging in 2008 and 2009.

Company

5-Year Annual Earnings-per-Share growth

5-Year Annual Dividend-per-Share Growth

Titanium Metals (12%) (21%)
Allegheny Technologies (19%) 0%
Carpenter Technology (12%) 1%
RTI International Metals (42%) 0%

Source: S&P Capital IQ.

The Foolish bottom line
With a moderate yield and finally recovering earnings, Titanium Metals isn't exactly a dividend dynamo for the time being. It does, however, exhibit some features of dividend health, including a low payout ratio and limited or zero debt. Investors interested in Titanium Metals for its dividend will want to keep an eye on industry cyclicality and the company's earnings stability to ensure that it'll be able to regrow its dividend in the coming years. If you're looking for some great dividend stocks, I suggest you check out "Secure Your Future With 11 Rock-Solid Dividend Stocks," a special report from The Motley Fool about some serious dividend dynamos. I invite you to grab a free copy to discover everything you need to know about these 11 generous dividend payers – simply click here.

Ilan Moscovitz doesn't own shares of any company mentioned. You can follow him on Twitter @TMFDada. Motley Fool newsletter services have recommended buying shares of Titanium Metals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.