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Looking at a dividend history can tell you more than just a snapshot.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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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 how that's changed over the past five years.
The company we're looking at today is Finish Line (Nasdaq: FINL), which yields 1%.
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.
FINL Dividend data by YCharts
Finish Line has raised its dividend every year since 2009 to where it now rests at $0.06 per quarter.
Immediate safety
To understand how safe a dividend is, we use two crucial tools, the first of which is:
Finish Line has no debt and as such has no interest expense to cover.
Sustainability
The other tool we use to evaluate the safety of a dividend is:
Source: S&P Capital IQ.
Finish Line's payout ratio is slowly rising with the growing dividend but still remains at a very low level below 20%.
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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