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Looking at a dividend history can tell you more than just a snapshot.
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Not all dividends are created equal. Here, we'll do a top-to-bottom analysis of a given company to understand the quality of its dividend and see how that's changed over the past five years.
The company we're looking at today is Applied Industrial Technologies (NYSE: AIT), which yields 2%.
Dividend
To evaluate the quality of a dividend, the first thing to consider is whether the company has paid a dividend consistently over the past five years, and, if so, how much has it grown.
AIT Dividend data by YCharts
Applied Industrial Technologies has raised its dividend every year since 2010.
Immediate safety
To understand how safe a dividend is, we use three crucial tools, the first of which is:
AIT Times Interest Earned TTM data by YCharts
The company has a very small interest expense, as it has no debt and its interest expense continues to get smaller. At 286, Applied Industrial Technologies covers every $1 in interest expense with $286 in operating earnings.
Sustainability
The other tools we use to evaluate the safety of a dividend are:
Source: S&P Capital IQ.
Applied Industrial Technologies' earnings payout ratio jumped after the financial crisis, but it has since come back down. With both the company's earnings payout ratio and free cash flow payout ratio below 50%, you can count on this dividend.
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.
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