How I Analyze Dividend Stocks: The 5 Numbers I Check First

Before buying any dividend stock, I run through the same checklist. Saves me from yield traps and helps me sleep at night.

1. Dividend Yield

Context matters. Compare to the stock's own 5-year average yield, not just the market. If a stock usually yields 2.5% and now yields 4.5%, ask why—could be undervalued, could be signaling trouble.

2. Payout Ratio

Dividends paid ÷ earnings (or free cash flow). Under 60% is comfortable for most sectors. REITs and utilities can sustain higher. Over 100% is a red flag—they're paying out more than they earn.

3. Dividend Growth Rate

How fast have they raised the dividend over 5 and 10 years? I want at least inflation-beating increases, ideally 5-7%+ annually.

4. Years of Consecutive Increases

Track record matters. Anyone can pay a dividend once. Companies with 10, 25, 50+ years of increases have weathered recessions and kept paying.

5. Free Cash Flow Coverage

Can they actually afford the dividend from cash generated? Earnings can be manipulated; cash flow is harder to fake.

Quick example:

Stock A: 5% yield, 95% payout ratio, 0% dividend growth, 3 years of payments Stock B: 2.8% yield, 45% payout ratio, 8% dividend growth, 18 consecutive increases

Stock B wins every time for me.

What metrics do you prioritize?