Today is Wednesday, March 18, 2020, and this is your daily dividend safety update. Today we’re looking at Covanta Holding Corporation (NYSE: CVA) stock to see whether its 11.36% dividend is safe.
High-yield dividend stocks can be very useful to investors of all ages. Younger investors can use dividend reinvestment plans (DRIPs) to grow their portfolios exponentially over time, while retirees can use them to generate passive income.
In both cases, it’s preferable to buy dividend stocks with steady or rising dividends – and avoid those that cut their dividends.
Let’s look at the payout ratio, cash flow growth, and dividend history of Covanta Holding Corporation to gauge the probability of a dividend cut in the next few years.
Payout Ratio (Dividends/Earnings)
Covanta Holding Corporation has a payout ratio of 1330%. That’s too high for our liking. Payout ratio equals dividends per share divided by earnings per share. Payout ratios near or over 100% indicate that the company might not be able to afford its dividend — or that it might have to borrow money to pay it.
Cash Flow Growth Year-Over-Year
Covanta Holding Corporation has grown its cash flow by 79.07% in the last year. That’s a good omen for dividend investors! When a company grows its cash flow, it can use some of that extra cash to strengthen — or even raise — its dividend.
Dividend History & Recent Cuts
Covanta Holding Corporation has not cut its dividend in the recent past. That’s a good sign. It’s not a guarantee that the company will never cut its dividend, but companies that have cut their dividends recently are generally more likely to cut them again.
Covanta Holding Corporation stock has failed 1 of our 3 dividend safety metrics. With that in mind, we believe a dividend cut is possible in the next few years.
Editor’s Note: We’ve been keeping an eye on some dividend stocks that could be better for your income portfolio than Covanta Holding Corporation. These dividends are much bigger — and safer — than the paltry yields many investors settle for. Enter your email below to learn more.