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Payout ratio as a risk indicator
Watch the Payout Ratio — the share of profit going to dividends. If a company gives away more than 60–70% of FCF to payouts, that's an alarm bell. It has no financial cushion in case of a crisis or the ability to invest in breakthroughs.
High dividend yield is often a sign that the market doesn't believe in the company's future.
Such companies become 'leveraged bonds': they don't grow, but they carry stock market risks. It's the worst of both worlds, where you get bond-level returns but with stock volatility.
#risks #portfolio