Money and Finance
The quick and clean method of determining a dividend's safety is by the payout ratio. The payout ratio is calculated by taking the dividends per share and dividing it by the earnings per share (EPS).
It's fairly easy and straight-forward and can be found on just about any financial website. Of course there's all sorts of variations on the payout ratio as you can take the trailing twelve months payout ratio, forward twelve months payout ratio, a blend of the two... The only thing that changes between those is what kind of dividends and earnings per share you're using, the calculation is the same. But for some industries the traditional method just isn't all that useful.
Let's start with the difference between earnings per share and free cash flow per share. Earnings are derived from the net income of a company. Essentially you take the revenue of a company subtract certain expenses such as administrative, depreciation, interest expenses, cost of goods, taxes, and a whole host of other items. That leaves you with the net income for that company and to get the earnings per share you just divide by the shares outstanding. All earnings per share information and calculations can be found on a company's income statement.
Read more »
- Recent Buy
I decided to go on a bit of a spending spree today and also purchased of 23 shares of Cummins (CMI) at $87.49 per share. You can check out my other purchase today here. It's hard for me to keep cash in my brokerage account because I want to get...
- Recent Buy
This morning I pulled the trigger and purchased 23 shares of Caterpillar (CAT) for $82.75 per share. Based on the recently announced quarterly payout of $0.52 per share my YOC for the position is 2.50%. The CAT shares will provide an extra $47.84...
- Mcdonald's Stock Analysis
It's about time for another stock analysis. This time I decided to take a look atMcDonalds (MCD). McDonalds closed on Thursday 5/17/12 at $89.62. Company Background: McDonalds Corporation, together with its subsidiaries, franchises and operates...
- Conocophillips Spinoff
Yesterday the ConocoPhillips spinoff into two companies went through. Phillips 66 (PSX) was spunoff from the parent company of Conoco (COP) to create value for shareholders. Phillips 66 is now comprised of the refining and pipeline business while Conoco...
- The Most Important Metric For Dividend Investors
While researching a dividend paying stock should be a holistic process and buying decisions shouldn't be based on any single metric, if there's one metric that every dividend investor should know, it's free cash flow cover. After all, an income...
Money and Finance
Earnings per share or free cash flow: What's the difference?
The quick and clean method of determining a dividend's safety is by the payout ratio. The payout ratio is calculated by taking the dividends per share and dividing it by the earnings per share (EPS).
Let's start with the difference between earnings per share and free cash flow per share. Earnings are derived from the net income of a company. Essentially you take the revenue of a company subtract certain expenses such as administrative, depreciation, interest expenses, cost of goods, taxes, and a whole host of other items. That leaves you with the net income for that company and to get the earnings per share you just divide by the shares outstanding. All earnings per share information and calculations can be found on a company's income statement.
Read more »
- Recent Buy
I decided to go on a bit of a spending spree today and also purchased of 23 shares of Cummins (CMI) at $87.49 per share. You can check out my other purchase today here. It's hard for me to keep cash in my brokerage account because I want to get...
- Recent Buy
This morning I pulled the trigger and purchased 23 shares of Caterpillar (CAT) for $82.75 per share. Based on the recently announced quarterly payout of $0.52 per share my YOC for the position is 2.50%. The CAT shares will provide an extra $47.84...
- Mcdonald's Stock Analysis
It's about time for another stock analysis. This time I decided to take a look atMcDonalds (MCD). McDonalds closed on Thursday 5/17/12 at $89.62. Company Background: McDonalds Corporation, together with its subsidiaries, franchises and operates...
- Conocophillips Spinoff
Yesterday the ConocoPhillips spinoff into two companies went through. Phillips 66 (PSX) was spunoff from the parent company of Conoco (COP) to create value for shareholders. Phillips 66 is now comprised of the refining and pipeline business while Conoco...
- The Most Important Metric For Dividend Investors
While researching a dividend paying stock should be a holistic process and buying decisions shouldn't be based on any single metric, if there's one metric that every dividend investor should know, it's free cash flow cover. After all, an income...