Graham's criteria
"One of the most persuasive tests of high quality is an uninterrupted record of dividend payments for the last 20 years." - The Intelligent Investor, Ch. 14
"The defensive investor must confine himself to the shares of important companies with a long record of profitable operations and in strong financial condition." - The Intelligent Investor, Ch. 14
Stable earnings and dividends are evidence of durability and management discipline.
Why it matters
- Reduces the odds of permanent impairment.
- Indicates business resilience across cycles.
- Supports valuation with cash returned to owners.
- Filters out story stocks with fragile economics.
How to apply the filter
- Look for 10-year earnings without losses; avoid frequent deep drops.
- Seek 20-year uninterrupted dividends for defensive picks; shorter but steady records for enterprising picks.
- Pair with balance-sheet tests (current ratio, debt levels) to ensure safety of principal.
Practical checks
- Plot 10-year EPS and dividends; flag drawdowns >30%.
- Read footnotes for one-time boosts masking instability.
- Avoid payout ratios that imply over-distribution; stability needs coverage.
Takeaways
- Stability is a quality gate, not a guarantee.
- Dividends plus earnings records filter candidates; margin of safety sets the buy price.
- Use this filter to stay out of low-quality traps and to size defensively.
Internal links and tools
- Balance-sheet events: Shares outstanding changes
- Volume tell: Interesting volume events
- Price pressure: Near-lows scanner
- Sentiment: Short interest changes
- More reading: Resources hub
Compliance note
This guide is educational and not investment advice. Do your own research or consult a professional adviser.