GE Debacle Reveals Weaknesses in Dividend Strategy

Dec 11, 2017 | In The Media

Another potential red flag with dividend stocks is weak cash flow, experts say.

“If a company has declining cash flow and/or their payout ratio is higher than 50 percent, I’d consider those major red flags and not recommend purchasing that dividend stock because it increases the likelihood of the dividend being cut,” said Robert P. Finley, principal at Illinois-based Virtue Asset Management.

Finley “always” looks at the cash flow of the company.

“I want to know what percentage of cash flash is being used cover the dividend payout,” he said. “This is referred to as the payout ratio and the rule of thumb is that a company should be using less than 50 percent of cash flow to pay dividends.”

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