Compute trailing dividend yield and classify it as no-dividend, payer, or yield of 3% or more
Answers whether a stock's dividend is attractive and sustainable. It reads corporate-action history for trailing dividends and the latest closing price to compute a trailing yield, then scores payout attractiveness and labels the stock a no-dividend name, a dividend payer, or a payer yielding 3% or more. It describes the trailing yield each asset paid. A recent stock split slightly tempers the score, reflecting share-count changes that affect per-share payout comparisons.
Dividends - where the theory says something surprising and the practice says something useful.
THE MEASUREMENT. Trailing dividends over the latest close, giving a trailing yield.
THE THEORY, which is worth teaching precisely because it is counterintuitive. Miller and Modigliani (1961) showed that in a frictionless market with no taxes and no information asymmetry, DIVIDEND POLICY DOES NOT AFFECT FIRM VALUE: paying a dollar out reduces the firm's assets by a dollar, and an investor wanting income could sell shares instead. The value comes from the earning power of the assets, not from how the cash is packaged. Everything interesting about dividends is therefore about the frictions the theorem assumes away - taxes, which historically treated dividends and capital gains differently; SIGNALLING, since a management team confident about future cash flows is more willing to commit to a payout; and agency, since paying cash out removes it from managers' discretion.
LINTNER (1956) is the empirical companion and explains the signalling channel. Interviewing managers, Lintner found that dividends are SMOOTHED: firms target a payout ratio, adjust toward it slowly, and are strongly reluctant to CUT because a cut is read as bad news. That reluctance is what gives a dividend its informational content, and it is why a cut has historically been accompanied by a sharp price reaction.
THE YIELD TRAP, which is the single most practical point. Yield is dividend over PRICE. A falling price mechanically raises the yield, so the highest-yielding names in any screen include companies the market expects to cut. A high trailing yield is therefore as likely to be a warning as an opportunity, and the screen cannot tell them apart.
WHAT WOULD DISTINGUISH THEM, and note this analysis does not read it: the PAYOUT RATIO - dividends over earnings, or better over free cash flow. A payout consuming most of free cash flow has no cushion. A yield is a fact about price; sustainability is a fact about cash flow, and only the second answers the question the analysis is named for.
TRAILING VERSUS FORWARD. A trailing yield is what was paid over the past year. A cut already announced but not yet effective does not appear in it.
THE SPLIT ADJUSTMENT. A stock split changes the share count and therefore per-share dividends without changing anything economic, so a per-share comparison across a split is meaningless unless adjusted - which is why the score is tempered when a recent split is present.
The 3% yield threshold and the scoring are our own convention.
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