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Methodology
The complete grading rules, enforced as written · Version 1.0, October 2026
The rule
These are the working thresholds behind every House Scorecard grade. They are enforced as written.
If a card's data makes a threshold look wrong, the threshold is flagged, not changed. If a card's verdict doesn't follow from these thresholds, the verdict is flagged. If a threshold is missing for a metric, that gap is flagged instead of inventing one.
Verdicts change only when a metric crosses a threshold. Every change appears in the Weekly House Score.
1. Verdict ladder
All checks pass: good.
One caution and no fail: warn.
Any fail: bad.
Yield below 1%, or a holding that is not income-purpose: warn. The card label says it is a growth holding, not income, and the tag stays warn.
Option-income funds: warn, as an income sleeve with capped upside, unless the distribution-versus-total-return check fails, in which case bad.
1b. Calibration rule (thresholds must fit the House)
The thresholds exist to reproduce the House's own design, not to override it. Before any threshold is finalized, it is back-tested: every permanent card (SCHD, JEPI, JEPQ, O, MAIN, VPU, QQQ, VYM, DGRO, HDV, NVDA) is run through the tables using current primary-source data, and the result is compared to its published verdict.
If a published verdict can't be reproduced, either the threshold or the verdict is wrong, and neither is changed silently.
A threshold that fails a core House holding with no real problem in the data is miscalibrated.
Grade by role: income holdings on coverage and growth, option-income funds on distribution versus total return, and the growth sleeve (QQQ) as “not income.”
2. Yield definitions (one definition per number)
Primary yield, all cards: trailing 12-month distributions divided by current price.
Secondary yields, always labeled: forward (latest declared, multiplied by frequency), SEC 30-day (ETFs), distribution rate (option-income funds), regular versus supplemental (BDCs).
Two yields are never shown side by side without labels.
Every figure carries an as-of date matching the snapshot. Figures older than 7 days are treated as stale.
3. Dividend stocks
| Metric | Pass | Caution | Fail |
|---|---|---|---|
| Payout (dividends ÷ free cash flow) | < 60% | 60–80% | > 80% |
| Net debt ÷ EBITDA | < 3x | 3–4x | > 4x |
| Dividend history | Raised, no cut in 10 yrs | Flat 3+ yrs or cut 5–10 yrs ago | Cut in last 5 yrs |
Financials and utilities: sector-appropriate leverage measures are used, and the card notes it.
4. REITs
| Metric | Pass | Caution | Fail |
|---|---|---|---|
| AFFO payout (not FFO, not EPS) | < 80% | 80–90% | > 90% |
| Net debt ÷ EBITDAre | < 6x | 6–7x | > 7x |
| WALE (net lease) | > 8 yrs | 5–8 yrs | < 5 yrs |
| Largest tenant | < 10% of rent | 10–20% | > 20% |
| Raise history | Consecutive annual raises | Paused | Cut |
Sanity check against the site's own example: about 75% passes, about 88% is caution.
5. BDCs
| Metric | Pass | Caution | Fail |
|---|---|---|---|
| NII ÷ regular dividend | ≥ 110% | 100–110% | < 100% |
| Non-accruals (graded at fair value; also report at cost) | < 2% | 2–4% | > 4% |
| NAV per share, 3–5 yr trend | Flat or up | Down < 5% | Down > 5% |
Also required: regular and supplemental dividends shown separately, and the price-to-NAV premium or discount noted.
6. Option-income funds
Pass: 3-year total return at least equal to distributions paid (NAV roughly stable), and upside capture disclosed.
Caution: total return below distributions for 1–2 years, or NAV drifting down.
Fail: total return below distributions persistently with falling NAV (return of capital masquerading as yield).
Expense ratio, graded separately from index ETFs: 0.40% or below passes, 0.40–0.60% is caution, above 0.60% fails, because active option strategies cost more than index funds.
Every option-income card states: distribution rate is variable, upside is capped, and the tax character must be checked against the fund's latest tax notices.
7. Dividend / sector ETFs
| Metric | Pass | Caution | Fail |
|---|---|---|---|
| Expense ratio | ≤ 0.10% | 0.10–0.30% | > 0.30% |
| Top-10 holdings weight (broad dividend ETFs only) | < 45% | 45–60% | > 60% |
| 5-yr dividend growth (dividend ETFs) | Positive, steady | Flat | Declining |
Sector ETFs (for example, utilities) are inherently concentrated: top-10 weight is reported as information and not graded. Growth ETFs (for example, QQQ) are not graded on income and are labeled “not income.”
8. Universal yield-trap triggers (any one forces a full coverage review)
Yield more than twice its category median, or at least 8% for a non-option-income holding.
Payout above 100% on the correct base.
Dividend cut or suspended in the last 3 years.
Yield rising mainly because the price is falling.
Special dividend included in the yield without disclosure.
9. House portfolio math
Room weights (must sum to 100%): Consumer Reliability 19 · Foundation Income 17 · Rental Income 16 · Essential services 13 · Tech Income 13 · Tech Infrastructure 12 · Credit/BDC 9 · Active/Research 1.
Blended yield equals the sum of weight times yield, recomputed and compared to what the site shows.
A pick that fails the trap check gets 0%.
Fewer than 7 picks: the remaining weights scale proportionally to 100%.
9b. Portfolio mechanics
The following describes intended behavior.
Current phase: all dividends are spread across House positions in proportion, so weights stay at target.
JEPI and JEPQ are bridge tools. They are held for income until the weekly or monthly DCA can buy 2–3 SCHD shares per month. At that point, all JEPI and JEPQ payouts go to SCHD instead.
Grading is separate from role. A card's verdict reflects the instrument's own metrics (JEPI is currently “caution” on distribution trend and NAV drift). The role explains why it is held; it never softens the grade.
Consequence the site states: once the switch happens, SCHD will drift above its 19% target and JEPI/JEPQ below 17% and 13%. Second-phase weights are not published. The switch is described only as the author's own personal practice, never as a plan for visitors, and any page that claims fixed target weights says they apply until the SCHD switch.
10. Tax statements
A distribution's tax character (qualified, ordinary, return of capital) is never stated from memory. It is verified against the issuer's latest tax notice or 19a-1 disclosure, with its date cited.
Qualified-dividend status also depends on the holder's holding period.
11. Language rules
Wording that reads as a personal recommendation does not appear: “always wins,” “safe,” “guaranteed,” “best,” “can't lose.”
Disclosure wording is consistent across the site and listings.
12. Version log
v1.0 — October 2026: thresholds calibrated against the House's permanent cards in a back-test.