Investors surprised by a 66% dividend cut announced by Intel in late February should check out recent research – Could Investors Have Anticipated Intel’s Dividend Cut? - by Morningstar Indexes Strategist Dan Lefkovitz.
Reaching for income and neglecting risk can lead investors into yield traps, a significant risk as solvency fears grow and financial distress ripples through markets. Even blue-chip companies are not immune to dividend cuts, as demonstrated by Shell in 2020, GE in 2018 and ConocoPhillips in 2016.
“Intel demonstrates a key risk for equity income investors,” says Lefkovitz. “Healthy payouts are often found in unhealthy sectors, industries, and securities. It’s imperative to screen for dividend durability if you want to sidestep yield traps.”
Lefkovitz goes on to describe two screens used by Morningstar Indexes to avoid yield traps—the Morningstar Economic Moat Rating and Distance to Default measure of financial health. Both are shown to have predictive power across time periods and geographies in identifying companies capable of sustaining their dividends.
Companies with Better Distance to Default Scores Were Likeliest to Sustain Dividends Over Time

Source: Morningstar Indexes. Time Period Studied: 2005-2022.
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