Dividend Safety Score Methodology

What the Safety Score measures

The Dividend Safety Score is a single A–F letter grade plus a 0–100 numeric value that estimates the probability a company sustains its current declared dividend over the next 12 to 24 months. It is NOT a forecast of dividend growth, total return, or stock price.

A grade of A or B indicates the dividend is well-covered by earnings and free cash flow with a sustainable payout ratio. A grade of D or F indicates one or more underlying factors are elevated and the dividend is at material risk of being cut or suspended.

Inputs (six factors)

Payout ratio (earnings basis): trailing-twelve-month dividends divided by trailing-twelve-month diluted EPS. Higher = less margin of safety.

Payout ratio (free cash flow basis): TTM dividends divided by TTM free cash flow. FCF coverage is the strongest sustainability signal; an EPS payout under 70% paired with FCF payout under 70% is the baseline for an A-grade.

Dividend consistency: count of consecutive years of dividend payments WITHOUT a cut or suspension. Aristocrat status (25+ years) shifts the score upward; any cut in the past 10 years shifts it downward.

Net debt / EBITDA: balance-sheet stress under economic downturn. Above 4× starts to compress the safety grade.

Earnings stability: standard deviation of YoY EPS growth over the past 10 years. High volatility (cyclicals, energy) lowers the grade even when current coverage is fine.

Forward growth outlook: consensus EPS forecast for the next two fiscal years. A flat-to-declining forecast with a >70% payout ratio compresses the grade.

How factors combine

Each factor is normalized to a 0–100 scale where 100 is best. The composite score is a weighted average: FCF coverage 30%, EPS coverage 20%, consistency 15%, net debt 15%, earnings stability 10%, forward growth 10%. The composite maps to a letter grade: A ≥90, B 75–89, C 60–74, D 40–59, F <40.

For pass-through structures (REITs, BDCs, MLPs) where GAAP EPS is structurally meaningless, the EPS coverage factor is replaced by FFO or AFFO coverage. For ETFs that distribute investment income, the model substitutes distribution yield stability for payout ratio.

Limitations

The Safety Score is a model output, not a prediction. Dividend cuts can be triggered by events the model does not capture (acquisitions, regulatory action, management changes). Use the score as one signal among many.

Data freshness depends on filing cadence. The score updates within 24 hours of each new 10-Q / 10-K filing being parsed by our data provider. Between filings the score reflects the most recent reported period.

The score does not adjust for special or one-time dividends; the model uses the regular declared cadence.