Calculator · Canada & US
Yield trap checklist
Score warning signs behind a high dividend yield: yield versus its normal level, price drop, payout ratio, earnings trend, past cuts and rising debt.
A yield jumps when the price falls. Before you count the income, find out why the price fell.
What you found
Its own 5-year average, or similar companies, as you judge it.
Negative for a fall, e.g. −25.
Warning signs 11 of 12
Yield vs reference
1.89×
Reading
Warning signs
Warning signs: The yield is 1.9× the reference yield you entered. Yields that far above normal usually mean the market expects a cut.
Warning signs: The price fell 30% or more in a year, which raises the yield on paper without any increase in the dividend.
Warning signs: The payout ratio is above 100%.
Warning signs: Earnings are falling, so the payout ratio will rise even if the dividend stays flat.
Warning signs: Debt is rising, which competes with the dividend for cash.
A score is a prompt to dig deeper, not a prediction or a recommendation. Read the latest annual report, the dividend policy and what management said about the payout.
Estimate for education, not advice. This site does not recommend, rate or rank any security and does not know your full situation. Results depend on your inputs and the simplifications listed under Method. Check tax details with the CRA or IRS, or a qualified professional. Read the disclaimer.
How to use it
- Enter the current yield and a reference yield: the company's own five-year average or the typical yield of similar companies, as you judge it.
- Enter the 12-month price change and the payout ratio.
- Answer the three trend questions from the latest reports.
- Read the reasons. A high score means 'investigate further', not 'sell'.
Method and limits
- Points are added for a yield well above its reference (1.3× and 1.75×), a large price drop (−15% and −30%), a payout ratio above 80% or 100%, falling earnings, a past cut and rising debt. Maximum 12.
- 0–2 points: few warning signs; 3–5: watch; 6+: several signs that often appear before dividend cuts. The thresholds are teaching rules of thumb, not a prediction.
Frequently asked questions
What is a yield trap?
A stock whose yield looks attractive because the price has fallen, when the fall reflects real risk to the dividend. If the dividend is then cut, the investor loses both income and capital.
Is every high yield a trap?
No. Some businesses (some utilities, pipelines, REITs) normally pay out most of their cash and yield more than average. The comparison that matters is against the company's own history and similar businesses.