Health Screening for Dividend Payers

Financial health is a critical consideration for equity income investors. Buying high-yielding shares without regard to the company’s ability to sustain its dividend payment is a risky proposition. The Distance to Default measure, which is employed in several of Morningstar’s dividend-screened indexes, ranks companies on the likelihood that they will encounter financial distress. This paper explores the relationship between Distance to Default and dividend sustainability.


In this report, you will learn:
  • Why chasing income can lead investors into risky corners of the equity market
  • How the Distance to Default measure is an effective predictor of dividend cuts
  • How Morningstar uses Distance to Default as a screen in several dividend-focused indexes
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