Have you ever heard of the term ‘Sustainable Dividend Growth’?

It’s not a very common term.

It’s easy to be impressed by seeing large double digit dividend growth-

But that doesn’t tell you if that growth was sustainable.

Here’s the reality:

If a stocks grows dividends faster than the rate they grow free cash flow, then the free cash flow payout ratio increases.

This means that level of dividend growth is unsustainable.

Look at Zoetis $ZTS for example.

Zoetis grew dividends over the last 5 years at a compounded annual growth rate of 16.22%-

But free cash flow only grew at 6.41%.

As a result, the free cash flow payout ratio climbed higher.

It isn’t enough to simply check for dividend growth.

It must be backed by growing free cash flow.

This is why I use automated sheets from Tickerdata to easily assess dividend sustainability.