/dividend-analysis

description: "Comprehensive capital allocation analysis: dividends, buybacks, M&A, debt management, and FCF deployment"

Capital Allocation Analysis (Dividend, Buyback, M&A & FCF Deployment)

⚠️ Data Verification — Do This Before Any Analysis

Before running any analysis, always retrieve the latest market data for the ticker:

1. **Fetch current price** — use web search or ask the user for the live price, 52-week range, and market cap. Never assume a price from training data. 2. **Confirm key figures** — recent earnings, revenue, key ratios (P/E, P/S, etc.) as applicable to this skill. 3. **State your data source** — fill in the `Data & Sources` header (next section) so the origin, as-of date, retrieval path, and confidence of every figure are explicit at the top of the output. 4. **Flag stale data explicitly** — if live data is unavailable, display this warning before proceeding:

> ⚠️ **Live data unavailable.** The following analysis uses training-data estimates which may be significantly out of date. Verify all prices and metrics before making any decisions.

Never silently substitute training-data estimates for current prices. When in doubt, ask the user to paste the latest quote.

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📋 Data & Sources Header — Open Every Output With It

The first thing in the output is this provenance block, filled in — never left as placeholders. It is the standard documented on the [Data & Accuracy](https://yennanliu.github.io/InvestSkill/data-and-accuracy.html) page and the first thing `result-validator` looks for:

Data & Sources
  As of:      <date the figures represent, e.g. 2026-06-30>
  Source:     <primary docs — SEC EDGAR 10-K/10-Q, company IR, FRED, exchange data …>
  Retrieval:  <pasted by user | web/tool retrieval | model memory>
  Confidence: <HIGH | MEDIUM | LOW>

• `Retrieval: model memory` must be paired with `Confidence: LOW` — memory is a placeholder until confirmed against a primary source.
• Mixed sources: list each with its own as-of date rather than blending them.
• Sources disagree on the same figure (a closing price, a deal term): prefer the primary source (SEC filing, company release, exchange data) over an aggregator, then the most recent dated one. Show both values with their sources and dates, say which you used and why, and never average them.
• Data the user pasted is reported as `pasted by user`; do not upgrade its confidence beyond what the user's own source supports.

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Comprehensive capital allocation analysis covering dividend safety, growth trajectory, share buyback discipline, M&A track record, debt management, and FCF deployment quality for US-listed stocks, REITs, and income-focused portfolios.

Analysis Framework

1. Dividend Safety Analysis

Assess the reliability and sustainability of the dividend:

**Payout Ratio Analysis**

• **EPS-based payout ratio**: Dividends per share / Earnings per share. Simple but earnings can be distorted by non-cash items.
• **FCF-based payout ratio**: Dividends paid / Free cash flow. More reliable measure — cash must be available to actually pay dividends.
• **AFFO payout ratio** (REITs): Dividends / Adjusted Funds From Operations. Standard metric for REITs since depreciation distorts net income.

**Safety Thresholds by Sector**

Sector               Very Safe    Moderate     Elevated     Danger
General (FCF)          <50%        50-70%       70-85%       >85%
Utilities (FCF)        <60%        60-75%       75-85%       >85%
REITs (AFFO)           <70%        70-80%       80-90%       >90%
Banks (Earnings)       <30%        30-40%       40-55%       >55%
MLPs (DCF)             <60%        60-75%       75-90%       >90%

**Dividend Safety Score (0-100)**

Weighted composite score:

• FCF payout ratio (25 pts): <50% = 25, 50-70% = 20, 70-85% = 10, >85% = 0
• FCF coverage ratio (20 pts): >2x = 20, 1.5-2x = 15, 1.0-1.5x = 8, <1.0x = 0
• Debt-to-EBITDA (20 pts): <1.5x = 20, 1.5-2.5x = 14, 2.5-3.5x = 7, >3.5x = 0
• Earnings stability (20 pts): Positive EPS 5yr = 20, 1 down year = 12, 2+ down years = 4
• Dividend history (15 pts): 10+ yr streak = 15, 5-9 yrs = 10, 2-4 yrs = 5, <2 yrs = 0

Score      Grade    Safety Assessment
90-100       A+     Very Safe
75-89        A      Safe
60-74        B      Borderline Safe
45-59        C      Elevated Risk
30-44        D      Unsafe
0-29         F      Danger Zone

**Dividend Stress Test**

• Scenario 1: Earnings decline 20% — can dividend be maintained at current payout?
• Scenario 2: Earnings decline 40% — what happens to dividend?
• Scenario 3: FCF drops to 5-year trough — payout ratio at trough FCF?
• Scenario 4: Revenue declines to 2020 COVID levels — stress test against prior recession data
• Pass/Fail for each scenario with projected payout ratio under stress

2. Dividend Growth Analysis

Measure the trajectory and sustainability of dividend increases:

**Dividend Growth Rate Calculations**

• 1-year DGR: Most recent annual dividend / Prior year annual dividend - 1
• 3-year DGR CAGR: (Current annual dividend / Dividend 3 years ago)^(1/3) - 1
• 5-year DGR CAGR: (Current / 5yr ago)^(1/5) - 1
• 10-year DGR CAGR: (Current / 10yr ago)^(1/10) - 1

DGR Tier        Range          Characteristic
Exceptional      >15%          High-growth compounders (FAST Graphs category)
Strong           8-15%         Solid dividend growers, re-rated higher
Moderate         4-8%          In line with or above inflation
Slow             1-4%          Token increases, inflation parity risk
Frozen           0%            No recent growth
Cut             <0%            Dividend reduced — major red flag

**Dividend Aristocrats and Kings**

• **Dividend Aristocrats**: S&P 500 constituents with 25+ consecutive years of dividend increases
• **Dividend Kings**: Stocks with 50+ consecutive years of consecutive increases (elite tier)
• **Dividend Achievers**: Stocks with 10+ consecutive years of increases (Nasdaq definition)
• Status confirmation adds credibility