Most "how to pick dividend stocks" articles list 25 metrics. I've never met an investor who actually checks 25 metrics. So here's a list of 5 that fit in my head and have caught every bad buy I almost made.

#1 — FCF Coverage Ratio

Formula: Free Cash Flow ÷ Dividends Paid
Target: Above 1.5 (i.e. FCF is at least 150% of dividends paid)

FCF is the cash actually available after operating expenses and capex. If a company's dividends consume more than 80% of their FCF, every bad quarter becomes a threat. Below 100% means the dividend is being subsidised by debt or asset sales — eventually unsustainable.

For REITs, substitute AFFO Coverage. For BDCs, substitute NII Coverage.

#2 — Payout Ratio

Formula: Dividends Paid ÷ Net Income
Target: Under 60% for standard corps, under 80% for utilities, under 90% AFFO for REITs, under 100% NII for BDCs

Payout ratio = how much earnings room the company has for dividend hikes without stretching. Low payout = lots of room to grow + safety cushion in downturns. High payout = the next hike will be small or non-existent, and a bad year forces a cut.

Watch payout ratio TREND more than the absolute number. A payout ratio of 65% that's been stable for a decade is fine; 65% that just jumped from 40% last year is a warning.

#3 — Dividend Streak (Years of Consecutive Raises)

Target: At least 5 years, ideally 10+. 25+ = Aristocrat. 50+ = King.

Streak length is the simplest measure of management commitment to the dividend. A 25-year streak survived 2008-09, the dot-com crash, COVID, and every other recent shock. A 2-year streak has been tested by exactly nothing.

Streaks also create internal momentum: management measures their performance partly by the streak, so they'll fight harder to maintain a 30-year streak than a 3-year one. Quality begets quality.

#4 — Debt-to-EBITDA

Formula: Total Debt ÷ Earnings Before Interest, Taxes, Depreciation, and Amortisation
Target: Under 3.0 for standard corps, under 4.0 for utilities, varies by REIT/BDC structure

Leverage check. A company with 5x+ debt-to-EBITDA is one interest-rate cycle from a covenant violation. Dividend cuts happen in lockstep with debt-load crises far more often than from pure business underperformance.

Watch for sudden increases. A company that's been at 2x for years and suddenly jumps to 4x via an acquisition has changed risk profile dramatically — even if the dividend hasn't moved.

#5 — Sector Context

Target: The yield is in the normal range for the sector

Not a single number, but a sanity check. Different sectors have different normal yield ranges:

• Tech: 0.5-2.5% (anything 5%+ usually means the stock crashed)
• Healthcare: 1.5-4%
• Consumer Staples: 2.5-4.5%
• Industrials: 1.5-3.5%
• Financials (banks): 2-5%
• Utilities: 3-5%
• REITs: 3-7% (mortgage REITs 8-12%)
• BDCs: 7-12%
• Energy (XOM/CVX): 3-5%

If a stock's yield is dramatically higher than its sector average, ask why. Usually one of: (1) the stock dropped sharply on recent news, (2) the dividend is unsustainably high, (3) the company is in transition. None of these are automatically disqualifying — but you need to KNOW which one before buying.

The 60-second mental routine

1. FCF covers dividend at > 1.5x? ✓ / ✗
2. Payout ratio within sector norms? ✓ / ✗
3. Streak of 5+ years of raises? ✓ / ✗
4. Debt/EBITDA at sector-typical levels? ✓ / ✗
5. Yield within normal sector range? ✓ / ✗

5 ✓ = buy with conviction. 4 ✓ + 1 ? = buy with smaller position size. 3 ✓ = pause, investigate, write down your thesis. 2 or fewer = walk away.

FAQ

Why only 5 numbers? Aren't there more important metrics?

Dividend investors get overwhelmed checking 20 metrics and end up checking none. Five is the number you can actually remember and run through mentally in under 60 seconds. The five chosen here covers ~85% of the risk surface for typical dividend buys.

What's the order of importance?

For most stocks: FCF coverage > payout ratio > dividend streak > debt/EBITDA > sector context. For REITs and BDCs, swap FCF coverage for AFFO/NII coverage. For utilities, sector context moves up because the regulatory environment dominates.

Where do I find these numbers in DiviDrip?

Four of the five are visible in DiviDrip. Payout Ratio is on the Dividend Info tab. The dividend streak shows up inside the Dividend Tier card on the Dividend Info tab and on the dedicated Triangle tab. Free Cash Flow and FCF Margin are on the Stock Metrics tab — compute coverage manually against the Annual Dividend shown on the Dividend Info tab. Debt-related metrics on the Stock Metrics tab include Debt/Equity, Total Debt and Total Cash (Debt/EBITDA itself isn't shown — use Debt/Equity as a quick leverage proxy). Sector appears in the modal header metadata and in the peer-compare popouts.

What if a stock fails on one of the five?

One failure = pause, investigate, decide. Two failures = caution, only consider if you have a strong thesis. Three+ failures = walk away. There are too many other quality dividend payers to bend the rules on a single questionable name.

How is this different from the Dividend Triangle score?

The Triangle score is automated and gives you a single number. The 5-number check is a manual sanity check you do BEFORE pulling the trigger on a buy. Use Triangle to filter for candidates from a universe of 4,500 names; use the 5-number check to validate a specific candidate before clicking Buy.

Run the check in DiviDrip

Open DiviDrip and click any ticker to launch the Stock Modal. Payout Ratio is on the Dividend Info tab, the dividend streak shows up inside the Dividend Tier card on the Dividend Info tab (and on the dedicated Triangle tab), and Free Cash Flow + FCF Margin live on the Stock Metrics tab — you compute coverage manually against the Annual Dividend shown on the Dividend Info tab. The Stock Metrics tab also surfaces Debt/Equity, Total Debt and Total Cash for a quick leverage read. Sector context lives in the modal header subtitle and in the peer-compare popouts. The Dividend Triangle tab is the useful pre-filter; the five-number check is the final gate.