Three Key Ratios For Investors

3) Dividend Payout Ratio

Dividends/Net Income

Why?

Getting a great yield now is perfect, but how can you be sure that this dividend won’t get canceled as soon as you buy the stock- you don’t. One way of keeping an eye on this is to look at the payout ratio. If too much of the income is being eaten up with a dividend then beware that dividend might get cut or at least it sure isn’t going to increase in the near future.

4) Dividend Growth Rate

Why?

If a company increases its dividend on a regular basis the returns over the long term can be jaw dropping. The future of a dividend can be more important than the present.

So how about you, if you only had four ratios what would you use?

8 responses to “Three Key Ratios For Investors”

	Weekly Links: February 28, 2010 \| Dividends Value February 28th, 2010 at 18:32 [...] Buy Value presented Three Key Ratios For Investors [...]
	Financial Uproar March 1st, 2010 at 14:10 Mine would be: 1) Current Ratio- Ditto to your comments 2) Price to Book- I like buying a dollar for less than a dollar. I’m cheap like that. 3) Debt to Equity- I try to avoid companies with lots of debt 4) Dividend Yield- While a dividend isn’t really that important to me if I like a company, I do like to get paid. Even if the company is about to be cut.
	Matt @ Dividend Monk March 3rd, 2010 at 09:19 I like your list. My third three would likely all be the same as yours: dividend yield, payout ratio, and growth rate. I’d probably use one of two different metrics in place of current ratio, though. Likely I’d replace it with LT Debt/Equity for large companies and Insider Ownership for small companies.
	simon March 4th, 2010 at 14:30 1) net current price to book ratio, I like knowing what the company would be worth if it went bankrupt compared to market price. 2) debt to equity , this is interesting to me because it shows how leveraged the company is. 3) current ratio, ditto 4) average price to earnings over the last 5-10 years depending how long the business has existed. Shows that the company can be profitable.
	Best Dividend Stock Investing Posts of the Week – March 6, 2010 March 6th, 2010 at 18:01 [...] Key Ratios For [...]
	Anonymous March 18th, 2010 at 10:30 As an investor, why would you invest in a company that doesn’t pay dividend on a regular basis?
	value investor March 22nd, 2010 at 11:37 I would agree with you. I like to see a solid dividend- otherwise it starts to look more like gambling rather than investing.
	Shannon Kawane July 4th, 2010 at 20:15 I like current ratio. I think payout ratio is good to evaluate sustainability and if the company has the right priorities (ie, too much payout compared to capital investment). I recommend focusing on other ratios that are closer to the source of dividends. Ratios like Price/Sales and Sales Growth Rates. A company that doesn’t know how to grow its sales will not be successful in maintaining its dividend.