Most people buy dividend stocks based on yield alone. That's how you end up holding a "7% yielder" that cuts its dividend 6 months later.

Here are the 5 things I actually look at before adding anything to my portfolio:

1. Payout Ratio (< 60% for most sectors)

If a company is paying out more than it earns, that dividend is living on borrowed time. I want companies with room to grow the payout, not ones barely hanging on.

2. Dividend Growth Rate (5-year CAGR)

A stock yielding 2.5% that grows its dividend 12% annually will outperform a static 5% yielder within a few years. I'm building a compounding machine, not chasing today's highest number.

3. Free Cash Flow Coverage

Earnings can be manipulated. Cash can't. I divide free cash flow by total dividends paid — if it's above 1.5x, the dividend is well-funded.

4. Debt-to-Equity Ratio

Heavy debt + economic downturn = dividend cut. I generally avoid companies with D/E above 1.0 outside of REITs and utilities (where leverage is structural).

5. Consecutive Years of Dividend Growth

Dividend Aristocrats (25+ years) and Kings (50+ years) exist for a reason. Consistency matters more than yield.

The best dividend portfolio isn't the one with the highest yield today — it's the one that pays you more every single year.

Inside DividendVault, I break down every pick using this framework and share my exact entries. If you want to build real passive income, this is how.