How can I tell if a company will continue paying good dividends and possibly increase dividends? - Seedly
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Anonymous

Asked on 21 Feb 2019

How can I tell if a company will continue paying good dividends and possibly increase dividends?

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Zann Chua
Zann Chua
Level 6. Master
Answered on 21 Feb 2019

Hello! You can also use the free cash flow to determine if the company will continue paying good dividends. Free cash flow is the money a company has left over after its pays the expense required to run its business, which means it is the cash that the firm makes in the normal course of business. The free cash flow adds back all the non-cash charges into net income to arrive at cash flow operating activities(CFO), which is the cash the firm makes in the normal course of business. In other words, CFO is what is required by the firm to “keep the lights on,” so to speak, and therefore, it goes without saying that if a firm’s dividend is so big that it’s bigger than the amount of cash it’s generating on a daily basis to keep it running, then this dividend is probably not very sustainable.

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Isaac Chan
Isaac Chan
Level 8. Wizard
Answered on 23 Feb 2019

I think you should also look at what investors think of the stock as well. Some stocks are known for their capital gains return while others for their dividend yield. Management, when deciding what kind of dividend policies to adopt, will probably look at what their investors think of their stocks as well. The market sentiment should be able to provide some insight.

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Sandra Teo
Sandra Teo
Level 7. Grand Master
Updated on 07 Jun 2019

Hi there! You can look at the current financial health of a company. Generally, if the company is consistently doing well and has positive growth prospect, it will most likely continue to pay their dividends. To know if the company will increase dividends is to first determine whether its current dividends is sustainable. The dividend payout ratio will tell you how much of a company's profit are paid out to investors in dividends. A low percentage indicates that the company has plenty of room to pay dividends and potentially will raise dividends in the future. Whereas a high percentage indicates the company can barely pay the dividend and thus less likely to increase dividends.

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Isaac Chan
Isaac Chan

22 Feb 2019

Thanks for the answer! "Dividend Payout Ratio=Dividend /Net Income" or "Dividend Per Share/Earning Per Share"