A couple of months ago I took a look at my Portfolio and ranked the stocks in various categories, including capital investment, reinvested dividends, cost basis, portfolio value and forward dividend income.  That was the first of what I hope to be many Portfolio Ranks posts.

In this post, I’ll rank my Portfolio stocks by Dividend Safety Score.  I obtained the Dividend Safety Scores from Simply Safe Dividends.

Here’s a link to where you can find out more about the Dividend Safety Scores they provide.

In this exercise of ranking my Portfolio stocks by Dividend Safety Score, I plan to get a measure of the safety of my dividend income.  The last thing I want is to see my dividend income cut.  Knowing which of my Portfolio companies might have trouble maintaining their dividend payouts is of prime concern.

In the paragraphs to follow, I’ll figure out where my Portfolio stands with regard to dividend safety, and then examine whether I need to take any action to improve the safety of my dividend income.

 

Rank by Dividend Safety

Note that these rankings are as of August 20th, 2021.

Simply Safe Dividends assigns the Dividend Safety Scores in a range from 0-100, with 5 distinct categories, as shown below.

As detailed on the Simply Safe Dividends site…

Dividend Safety Scores™ predict dividend risk over a full economic cycle by analyzing the most important metrics for dividends, including:

• Payout ratios
• Debt levels and coverage metrics
• Recession performance
• Dividend longevity
• Industry cyclicality
• Free cash flow generation
• Forward-looking analyst estimates

 

Ideally, I’d like to see all my holdings be in the Safe or Very Safe categories.

My Portfolio currently consists of 55 stocks.  All of the stocks pay dividends except The Walt Disney Co. (DIS), which suspended its dividend last year at the onset of the pandemic.

I color-coded the Dividend Safety Scores in the tables below to match the categories from the table above.

I ranked the stocks primarily by the Dividend Safety Score.  However, if two or more stocks have the same score, I then ranked them by Dividend Weighting within my Portfolio.

Should there be a tie with respect to Dividend Weighting, too, then the stocks were subsequently ranked by Value within my Portfolio.

You’ll see that I added up the Dividend Weightings in order to see what percentage of my dividend income comes from each category.  Note that the percentages don’t quite sum up to 100%, as there were some rounding errors along the way.

So, here we go… let’s check out the Dividend Safety Scores for my Portfolio stocks and see where they rank…

 

 

Here’s a table summary as well…

 

50.7% of my dividend income comes from stocks rated Very Safe.  Another 37.6% comes from stocks rated Safe.

Impressively, that’s 88.3% of my dividend income rated Safe or better.  I’ll take that!

Leading the way for me in the Very Safe category are 3 of my legacy stocks in Procter & Gamble (PG), Aflac (AFL) and Johnson & Johnson (JNJ).

Just a shade over 10% of my dividend income is rated Borderline Safe.  This group was comprised of 5 stocks, 3 of which sport high dividend yields in Altria Group (MO), Iron Mountain (IRM) and Omega Healthcare Investors (OHI).  It was no surprise to see that these higher-yielding stocks had more suspect dividend safety.

What was a little surprising for me was the bad rating for Air Lease (AL).  This was my only stock rated below the Borderline category.  It skipped the Unsafe category and landed in the Very Unsafe one.  This suggests the dividend for AL is at high risk of being cut.  I’ve owned AL in my Portfolio for over 6 years and never considered the dividend to be so risky.  However, the historically negative free cash flow for AL was probably a key factor in the poor rating.

As for the 2 stocks that were not rated, those were DIS and Organon & Co. (OGN).  No rating for DIS makes sense given that the dividend is currently suspended, as noted earlier.  As for OGN, the company just initiated a dividend earlier this month, so I suspect a Dividend Safety Score might be coming for OGN in the near future.  The score will probably start out fairly low given such short operating and dividend histories.

 

Actions to Come?

Well, overall I’m rather ecstatic with the Dividend Safety Scores for my Portfolio stocks.  Thus, I don’t suspect I’ll be taking too much action at all.

However, it would seem I need to pay more attention to AL – my lone stock with an Unsafe or worse rating.  While AL doesn’t have a large yield and doesn’t comprise a very significant portion of my dividend income (just 1.2%), the stock does make up a larger chunk of my Portfolio value at ~1.8%.  Should AL cut their dividend, the stock price would most likely take a tumble as well.  Thus, lowering my exposure to AL seems like a wise move.  So, I’ll look to trim some of my AL position as I move forward.  Should AL improve their Dividend Safety Score during this process, I can consider holding off on additional trimming.

 

What did you think of the Dividend Safety Scores from Simply Safe Dividends?  Do you own some of the stocks from my Portfolio?  Were you surprised by any of their Dividend Safety Scores?  Please share in the Comments!