Asked by Anonymous
Updated on 13 May 2019
Dividend Payout Ratio
Some other metrics that you can consider is the dividend payout ratio, which is Dividends/Net Income. The lower the ratio, the better, since it could suggest that the company has more funds to pay out as dividends.
Another metric that you might want to consider is to look at cashflow from investing activities as well. Some companies such as Keppel are very capital intensive, where there is a lot of cash spent on capital expenditures. Some companies also try to grow their cashflows through acquisitions or investments in other companies. Such cash outflow don't typically show up on your income statements directly, but they definitely affect how much dividends can be paid.
Another metric to compare between the companies is the amount of debt the company has. Debt means that cash would need to be left aside to pay off the debt in future, reducing the amount of cash left for dividends.
no matter how rich a parent, you never know when they will stop giving you pocket money whether they cannot give anymore or they decided to stop giving.
If companies cannot give dividends anymore, it may seem bad, but in bad times, this may also mean prudence in managing available funds.
again, dividend is another portion of cash flow management. How companies manage dividends at various financial health is a piece of the puzzle that shows the whole picture.
It is up to the management decision to whether to continue to give out dividends.
What we can do as an investor is only to check whether the dividend is sustainable based on these few factors.