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Dividend yield rises when the payment rises or the share price falls. The same percentage can describe a healthy distribution or a market expecting the cash to disappear.
What is a dividend yield trap?
A yield trap is a stock whose high quoted yield attracts investors even though the underlying payment or business value is at risk. The label is interpretive: high yield, drawdown, and weak coverage increase the need for investigation but do not prove a cut.
How does the high-yield and price-decline screen work?
The Apparent High Dividend Yield, Structural Price Decline interpretation requires elevated trailing-twelve-month dividend yield, a deep drawdown from a reference peak, and a free-cash-flow coverage shortfall. All three must fire.
A match establishes current yield, historical price position, and backward-looking coverage evidence. It does not say whether price is wrong or whether the board will change the dividend.
Elevated Yield With Deep Drawdown and Multi-Year FCF Shortfall
TTM dividend-to-price is elevated while current close is well below the lookback-window peak and dividends have exceeded FCF over a multi-year window
How does the dividend-safety cash-strain screen work?
The Apparent Dividend Safety, Structural Cash Strain interpretation requires a long dividend history, multi-year free-cash-flow under-coverage, and a high payout share. It is useful for finding mature payment records that current cash economics may not support.
Historical consistency can continue through temporary shortfalls funded by cash, borrowing, or asset sales. Cash flow can also recover. A match is not a cut forecast.
Long Dividend Streak With Multi-Year FCF Shortfall
Long, uncut, growing dividend streak alongside multi-year FCF shortfall and high earnings payout ratio
How do you calculate whether a dividend is covered?
Compare common cash dividends with normalized free cash flow after maintenance investment, leases, interest, taxes, and working-capital needs. Examine several years and a downside scenario. Accounting profit payout helps, but cash timing and necessary expenditure determine payment capacity.
Where do you verify dividend funding?
Read cash-flow, debt, liquidity, equity, and subsequent-event notes. IAS 7 provides the cash-flow framework, while the SEC's Form 10-K guide identifies audited statements, risk factors, and management discussion.
Reconcile dividends with operating cash, capex, borrowing, disposals, and cash balances. Check debt covenants, legal distribution limits, preferred claims, and board policy.
What creates false yield-trap signals?
One large capex project, temporary working-capital absorption, a broad market drawdown, special dividends, or a low reference price can distort the pattern. Conversely, smooth reported coverage can hide deferred maintenance, rising debt, or cash trapped in subsidiaries.
How should you use the dividend screens?
Start with the high-yield panel when current yield and drawdown define the search. Use the cash-strain panel for established dividend histories. Combining both imposes all requirements with AND logic. A zero result applies only to the current evaluated universe and data.
Which dividend risks remain outside the screen?
The panels do not predict board decisions, refinancing, commodity prices, regulation, maintenance needs, or business recovery. They also do not establish that a cut is priced in. Use CompanyGraph to find coverage conflicts, then model cash availability, balance-sheet options, and valuation.