Dividends4Life: The 5 Cs to Evaluate Dividend-Paying Stocks

The 5 Cs to Evaluate Dividend-Paying Stocks

Posted by D4L | Tuesday, November 06, 2012 | | 0 comments »

The five Cs of credit analysis are commonly used by credit analysts and commercial bankers as a shortcut to assess borrowers. The same strategies are equally applicable to evaluating dividend stocks. If a bank does not want to lend money to your dividend stock, you should forget about "lending money" to them (investing in the stock).

C1 — Character: Is the borrower willing to repay the loan? C2 — Cash flow: Does the borrower have sufficient cash flow to service the interest and principal payments on the loan? C3 — Capital: What assets or capital does the borrower have? C4 — Collateral or security: Can the borrower put up security or get individuals or corporates to guarantee the repayment of the loan? C5 – Conditions: How much have the company’s sales and net margins fallen by relative to the industry in the past economic recessions? How has the company’s share price performed relative to the market in past bear markets?

Source: Guru Focus

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