Got dividends?

Probably not as much as you previously thought.

The Associated Press recently reported that dividends "are being cut at the fastest pace in at least 50 years." What's more, the cutters aren't just dividend upstarts like Whole Foods , which only began paying a dividend in 2004. No, we're talking blue-chip dividend stalwarts -- like Bank of America (NYSE: BAC) and Citigroup (NYSE: C) -- both of which have reduced their quarterly dividend to $0.01 as part of their bailout terms. Others, like Pfizer (NYSE: PFE) and Dow Chemical (NYSE: DOW), have drastically cut their hefty yields to fund pricey acquisitions. Just yesterday, General Electric (NYSE: GE) announced a 68% dividend cut to help preserve its balance sheet and AAA credit rating.

It's not easy being a dividend
All told, as my Foolish colleague Ilan Moscovitz writes, a mind-boggling $22 billion in dividend payments were eliminated during this past quarter alone. This is especially distressing because it's estimated that more than half of America's retirees rely on dividend income to maintain their standard of living.

Was there any way investors could see this coming?

Perhaps.

Not every dividend cut mentioned above was expected, but many companies gave signs -- or are giving signs -- that a savvy investor could have noticed.

High expectations
It's important to remember that while the market is often irrational, it isn't always.

As such, a high yield is often indicative of underlying troubles because it indicates that shares have been beaten down to such an extent that investors have serious doubts about the firm's financial position. The company might go under, or, more likely, it could cut its dividend, thereby reducing the yield you thought you paid for. One could argue that this is the case at Allied Capital (NYSE: ALD), which currently yields a whopping 77.2%.

Bottom line: Investments in stocks with yields over 20% are better left to speculators.

High payouts
But even low-yielding companies can face a dividend cut. Perhaps the best way to assess both the near-term and long-term feasibility of a company's dividend is by determining the company's dividend payout to free cash flow ratio. This metric pits a company's annual dividend outflows against its annual free cash, i.e. the uncommitted cash a company is left with after maintaining its current business and investing in future business.

Companies have a very difficult time supporting free-cash-flow payout ratios above 100% because the only way to pay out more cash than they earn is to issue shares, issue debt, sell off assets, or deplete cash reserves -- none of which are sustainable over the long term.

By way of example, here are three such companies whose dividends might soon either go the way of the dodo or Grant Williams as evidenced by this ratio:

Company

Market Cap

Dividend Yield

Free-Cash-Flow Payout Ratio

China Mobile (NYSE: CHL)

$174 billion

3.9%

2,501% Continued...