Crucial Dividend Metrics First and foremost, it's important to check the quality of a company's balance sheet. Irresponsible debt levels are often the enemy of dividend safety. An easy way to track the health of a corporation's balance sheet is to check the credit scores assigned to the company by the major credit agencies. If a management team can't secure an investment grade credit rating, how can you expect them to provide a secure source of passive income? Another quick and easy metric to check is the earnings per share (EPS) dividend payout ratio. Acceptable payout ratios vary from industry to industry. Certain industries, like utilities, telecoms, and consumer staples that have reliable cash flows are given the benefit of the doubt by the market. More cyclical industries like industrials, transports, and consumer discretionary names require a wider margin of safety. A general rule of thumb when looking at payout ratios is to target 80% or less for utilities, telecoms, and certain specialty industries like tobacco, and 50% or less for other dividend payers. If a company's payout ratio is 50% or less, it can experience issues with earnings growth and still maintain, or even increase, its dividend. This responsible stewardship of shareholder returns is why there are companies with multi-decade long annual dividend increase streaks. Dividend aristocrats experience hard times during recessions just like the rest of the market, but they're still able to reward shareholders with rising income because of the high quality of their management teams. With regard to EPS growth issues, it's important to track sales growth. Income oriented investors want to see reliable EPS growth, but this isn't possible over the long-term without similar sales growth. Bottom line issues begin as the top-line erodes. Management can use efficiency measures, cost cutting, and financial engineering methods such as stock buybacks to bolster the bottom line in the short-term. However, if there is not regular (or better yet, increasing) demand for products and services to drive sales, a dividend can't be considered safe over the long-term. Consistent negative sales growth often represents industry disruption, which can be dangerous for an income oriented investor. Due diligence should go deeper than credit scores, payout ratios, and EPS and revenue growth. But these metrics are good places to start. While the threats of dividend cuts can be scary, it's important to remember that the U.S. equity market has produced unparalleled wealth creation for investors over the long haul. Furthermore, dividend growth provides protection from inflation that bond yields do not. All investments come with risk, but you don't have to be scared if you know what to look out for. Another common source of investor fear right now? Overpriced and risky marijuana stocks. But if you pick the right cannabis companies, you can make a quick fortune. The key is knowing where to look. My colleague Jim Pearce, chief investment strategist of Income Millionaire, has pinpointed a company that offers a unique marijuana profit-sharing program. A small group of everyday Americans are earning up to $55,563 a year from this program. Want to join this inner circle of lucky investors? Click here for Jim's presentation. | 
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