Whats the best way to tell if a companys dividend payments are at risk?
Look at the free cash flow, and see if it covers the debt payments and dividend. Sensible dividends are those that do not exceed what the company needs to use for business operations. BUT- there are important distinctions for REITs and other corporate entities that are set up under the Investment Act of 1940 to return money to shareholders (to avoid the Corp. paying income tax on “profits”). There are many types of such companies, from Closed-End Funds, whose payments may be a part return of capital, to certain Master Limited Partnerships (publicly Traded Partnerships), which are patially sheltering income from immediate marginal taxation; to Royalty Trusts, both U.S. and Canadian, whose charters require such pass-throughs…and their dividend yields may be far in excess of what a utility, such as ConEd or Verizon, might pay. So high-yield securities aren’t all risky; some foreign telecoms and energy companies may pay a lot at one time per year; other closed-end funds may pay > 10% mon
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