How to Use SafetyNet Pro

Hi there! It’s Marc Lichtenfeld again. This is the second video in my four-part Infinite Income Master Plan video series.

In this video, I’m going to show you how easy it is to use my proprietary dividend safety calculator, SafetyNet Pro.

I look at a lot of criteria when choosing stocks for The Oxford Income Letter’s portfolios. I choose stocks based on yield, dividend growth and, perhaps most importantly, dividend safety.

Look, you don’t want to suffer an unexpected loss of income – or, worse, a complete loss of income, if a company cuts or eliminates its dividend.

And a dividend cut puts your principle investment at risk, too. The stock market almost always punishes dividend cutters by sending their stock prices down the drain.

So to prevent these types of dividend disasters, I created my own dividend safety rating system, SafetyNet Pro. It predicts dividend cuts with stunning accuracy.

In the past, SafetyNet Pro predicted a number of high-profile dividend cuts – including cuts by General Electric, Plains All American Pipeline and Prospect Capital.

So how do I do it?  How do I predict dividend cuts way before other analysts do?

Well, I measure dividend safety by looking at metrics other analysts overlook. (I used these overlooked metrics to develop SafetyNet Pro.)

I’ll tell you how to use it in just a minute.  But first, let me tell you how it works.

My system assesses cash flow levels, payout ratios and a slew of other quantitative data to figure out how secure a company’s dividend is.

The first factor I consider when conducting a dividend safety evaluation is the company’s payout ratio. The payout ratio tells me how much of the company’s profits are paid out in dividends.

Generally, I look for a payout ratio of 75% or less. That way I know that the company won’t have to cut the dividend even if it runs into hard times.

The payout ratio is by far the most important component of my dividend safety analysis.

But my payout ratio calculation process is unique.

I use free cash flow to determine payout ratios – not earnings, like most other analysts.  That’s because cash flow is much more difficult to manipulate than earnings. Its’s a “purer” number.

My payout ratio is simply dividends paid out divided by free cash flow.

After that, I look at free cash flow growth. I want to see cash flow growing because that means the company will have even more money to pay even bigger dividends in the future. If cash flow is going up, there’s a good chance that the dividend will be going up right along with it.

Finally, I analyze a company’s dividend history. Companies often use dividends to attract and reward loyal investors.

Dividends give investors a great reason to hold on to their shares, since they provide a steady stream of income. For many investors, dividends also reinforce the reason they invested in the companies in the first place.

Companies with a long history of paying out dividends are less likely to reduce or eliminate them when times get rough. That’s because their management team knows that many long-term investors own their stock precisely for the dividend. And a cut would lead to a mass exodus of a stable shareholder base from the stock.

Most companies are very proud of their dividend-paying history. And they often tout their history of paying and raising their dividends on their websites and during presentations. So cutting their payouts would also be an embarrassment to management.

Also, a dividend cut, more often than not, signals that the company is having cash flow problems. And that’s definitely not a signal management wants to send out to investors.

For most dividend payers, cutting the dividend is a last resort. And the longer the company has been paying dividends, the less likely they’ll be to reduce it in bad times.

I combine these three factors, as well as a few other proprietary metrics, to give each dividend a safety grade.

Just like when you got your report card back in school, “As” are great and “Fs” mean your dividend is in big trouble.

If a stock is “A”-rated by SafetyNet Pro, that means that the dividend is extremely safe. There’s almost no risk of a dividend cut.

A “B”-rated stock is also considered safe. There’s a low risk that the dividend will be cut.

I consider the dividends of “C”-rated stocks to be moderately safe, but there’s more risk of a dividend cut than there is with a “B”-rated stock.

If a company has a “D” grade, that means that its dividend is not very safe. It has a high risk of being cut.

And finally, an “F” rating means that the dividend is very unsafe. It’s likely the company will cut it in the future.

Okay, now that you know how SafetyNet Pro predicts dividend cuts, I’ll show you how easy it is to use it.

You’ll find my SafetyNet Pro dividend safety calculator on The Oxford Income Letter website under the “Tools” section.

All you have to do is click on SafetyNet Pro and you’ll be taken straight to the SafetyNet Pro dividend safety calculator.

Here you’ll find real-time access to hundreds of stocks’ dividend safety ratings.

To find out if a dividend payer in your portfolio makes the grade, simply enter the company’s name or ticker symbol into the appropriate boxes and hit “Enter” on your keyboard. In just a few seconds, you’ll be shouting, “Voila!”

The dividend safety grade of your favorite stock is at your disposal.

But that’s not the only way to use SafetyNet Pro.

You can also search or sort stocks by yield, market cap, industry and even the dividend’s current safety grade.

For more details on SafetyNet Pro, be sure to check out my “SafetyNet Pro User’s Guide.” You’ll also find the easy-to-use guide on The Oxford Income Letter’s website under the “Reports” section.

With SafetyNet Pro, you can feel confident that your dividend income stream will continue.

For more in-depth analysis, check out my Safety Net column on wealthyretirement.com.  It’s also included with your Oxford Income Letter subscription.

Every Wednesday at Wealthy Retirement, I provide readers with a comprehensive analysis of a different company’s dividend.

And SafetyNet Pro isn’t the only dividend investing tool included with your Oxford Income Letter subscription. You also have access to my Retirement Cash Calendar.

The Retirement Cash Calendar tells you when you’ll receive your dividend and interest payments from the stocks and bonds in The Oxford Income Letter portfolios.

In the third installment of The Infinite Income Master Plan, I’ll show you how to use the Retirement Cash Calendar to track the exact date of every payout coming in our portfolio.

Stay tuned.