Is dividend payout ratio a better indicator than yield in down-turns?
I have always been a follower of dividend payout ratio (the percentage of earnings paid out as dividends) as a yardstick of present and future performance in a dividend stock over dividend yield (annual dividends paid per share/price per share). Why? Fundamentally, my worst case scenario is that I am paid the same dividend no matter how the stock does and a company that manages its cash well long-term, by protecting or raising the dividend, will, over time, be rewarded by the market. As evidence, The Dividend Guy cited a study that found the higher the dividend payout ratio, the better earnings growth the company experienced. I admit that my fundamental assumption that a stock may go sideways for years, as long as the dividend is protected, is a morbid way of looking at the stock market but dividend investing is cash flow investing. Dividend yields, since it relies in part on stock price- a variable related to future expectations set by third parties, is dependent partially on apprecia
