How to check a dividend stock in 6 steps

This is an interesting and practical guide for quickly evaluating dividend stocks, shared in a social media-friendly format. Let's analyze its content.

1. Overview & Purpose

The guide aims to demystify dividend stock analysis for novice or time-pressed investors. It presents a "1 Min Analysis" framework using six key financial ratios. The accompanying text emphasizes empowerment through basic understanding and correctly frames the guide as a simplified starting point, not exhaustive research.

2. Analysis of the 6-Step Framework

The table is well-structured for clarity. Here's a discussion of each ratio:

3. Strengths of the Guide

• Accessibility: Translates complex concepts into simple formulas and benchmarks.

• Logical Flow: Covers yield, sustainability (two payout ratios), financial health (debt), and growth (earnings & dividends).

• Focus on Sustainability: By emphasizing payout ratios and debt, it correctly steers investors away from chasing high-yield traps.

• Clear Disclaimer: The repeated reminder to do your own research is legally and ethically crucial.

4. Critiques & Omissions

• Over-Simplification: The single-number benchmarks don't account for industry differences. (e.g., REITs will have high payout ratios, tech stocks may have no dividend).

• Snapshot vs. Trend: A single point-in-time ratio is less informative than a 5-10 year trend. Is the payout ratio rising? Is debt increasing?

• Missing Context: No discussion of dividend history (e.g., "Dividend Aristocrat/Kings" with 25+ years of increases) or business model moat.

• The ExxonMobil Example: It's used as the example for every ratio, which is useful for consistency but can be misleading:

  • It fails its own Dividend Growth benchmark (2.7% vs. >10%).

  • Its Payout Ratio (57.6%) is outside the suggested "good" range (20-50%).

  • This perfectly illustrates why the guide is a framework—not a strict checklist. Exxon, an energy sector giant, operates with different capital priorities and sector norms.

• No "Total Return" Perspective: It doesn't mention that share price appreciation combined with dividends is the true measure of return. A high-yield stock with falling price can still lose you money.

5. Conclusion & Final Comment

This social media post is a high-quality, responsible piece of beginner-friendly financial education. It provides a powerful mental model for screening stocks and asking the right questions.

However, it is exactly what it says it is: a simplified overview. An investor should use this as Step 1: The Quick Screen. Stocks passing this test would then require Step 2: Deep Research, which includes:

• Analyzing long-term trends of these ratios.

• Understanding the company's competitive advantage.

• Reading annual reports (CEO letter, risk factors).

• Assessing industry and economic cycles.

• Considering valuation (e.g., P/E ratio).

The guide’s greatest value is in promoting disciplined, ratio-driven thinking over hearsay or chasing yield. The stark contrast between the aggressive benchmarks and the ExxonMobil example is, unintentionally, its best lesson: rules of thumb guide you, but understanding the context and story behind the numbers is what makes a smart investor.