How this site checks whether a dividend is safe
Last updated October 22, 2026. Thresholds below are the ones the code uses today.
A high dividend yield can come from a strong business or from a payout it cannot afford. This site runs six cash and balance-sheet checks on every dividend payer and counts how many fail. Zero or one flag puts a stock on the sustainable high-yield list, and three or more puts it on the yield-trap list. The count is a plain tally, not a score.
What are the six checks?
| Check | Rule | Why it matters |
|---|---|---|
| Cash-flow payout | Dividend per share above free cash flow per share | Paying out more cash than the business generates. The core check: cash, not accounting earnings |
| Negative free cash flow | Paying any dividend while free cash flow per share is zero or negative | The dividend can only come from debt or cash reserves |
| Earnings payout | Payout above 100% of trailing net income (REIT-aware) | Already flagged by the Dividend & Income Screener |
| High leverage | Debt to equity above 2.0 and above 1.5 times its sector's median | Debt competes with the dividend for cash |
| Weak interest coverage | Below 3 times and below 0.7 times its sector's median | Interest takes priority over dividends |
| Declining revenue | Trailing revenue growth below -5% year on year | A shrinking business with a rich yield is the classic yield-trap pattern |
A separate flag, a yield more than twice its sector's average, is shown for context and not counted.
How do the two lists work?
- Sustainable high yield: dividend payers with 0 or 1 of the six flags, ranked by yield.
- Yield traps to avoid: dividend payers with 3 or more flags, ranked by flag count and then yield.
Each row shows exactly which checks failed. A falling price pushes the yield up, which is why a spiking yield is a warning more often than an opportunity. See how to calculate the dividend payout ratio for the first check.
Where does the data come from, and what is left out?
Free cash flow, leverage, coverage and revenue growth come from this site's weekly screener and DCF data (Finnhub fundamentals), and the earnings payout flag from the Dividend & Income Screener's own pipeline. The free data providers do not give per-payment dividend history, so the screen cannot see that a particular payment was a one-off special dividend. It checks the conditions a sustainable dividend should clear instead.
What are the limits?
Six checks cannot predict a dividend cut, and a company can fail one for a temporary reason. Sector medians are only as good as the stocks in the sector set, and a check without data is skipped, not failed. Free cash flow in a single year can swing with a big investment. Treat a flag as a reason to read the filings, not a verdict.
Frequently asked questions
What is a yield trap?
A stock whose high yield exists because the price has fallen faster than the dividend, usually because the market expects a cut. On this site it means three or more of the six checks fail.
Why use free cash flow instead of earnings for the payout?
Dividends are paid in cash, and earnings include non-cash items. A cash-flow payout above 100% means the company paid out more than it generated, whatever its reported profit says.
Does one failed check mean the dividend will be cut?
No. One flag is common and often temporary. The sustainable list allows up to one flag, and the trap list starts at three.