Comments on: I am trying to decide if a company has enough income to continue its dividend? http://www.uicinvestors.org/dividend/i-am-trying-to-decide-if-a-company-has-enough-income-to-continue-its-dividend Sun, 07 Aug 2011 02:09:59 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: muncie birder http://www.uicinvestors.org/dividend/i-am-trying-to-decide-if-a-company-has-enough-income-to-continue-its-dividend/comment-page-1#comment-4064 muncie birder Wed, 10 Feb 2010 09:13:59 +0000 http://www.uicinvestors.org/dividend/i-am-trying-to-decide-if-a-company-has-enough-income-to-continue-its-dividend#comment-4064 There are quite a few oil companies that are around 50% currently. Their earnings took a hit this year because of the drop in oil prices. The large oil companies in general would attempt to avoid cutting the dividend if at all possible, but that certainly is not assured. Let's take a look at CVX which pays a substantial dividend of $2.72 a share but earned only $5.14. That is higher than 50%. Now let's check out the dividend history and see what it has done in the past. It has raised its dividend every year for the past 10 years, maybe longer. During that time the payout ratio was as low as about 20% and higher than 300% of earnings. Cash flow is the real money a company takes in in a year. Earnings are what it earned. Cash flow includes depreciation less capital expenditures. Earnings does not. If a company is making a lot of capital expenditures or may have to make a lot of capital expenditures it is very likely to reduce the dividend to meet the capital needs. A smaller oil company might very well have to reduce the dividend if it were to need cash say to take advantage of a new oil deposit for example.<br><b>References : </b><br> There are quite a few oil companies that are around 50% currently. Their earnings took a hit this year because of the drop in oil prices. The large oil companies in general would attempt to avoid cutting the dividend if at all possible, but that certainly is not assured. Let’s take a look at CVX which pays a substantial dividend of $2.72 a share but earned only $5.14. That is higher than 50%. Now let’s check out the dividend history and see what it has done in the past. It has raised its dividend every year for the past 10 years, maybe longer. During that time the payout ratio was as low as about 20% and higher than 300% of earnings.

Cash flow is the real money a company takes in in a year. Earnings are what it earned. Cash flow includes depreciation less capital expenditures. Earnings does not. If a company is making a lot of capital expenditures or may have to make a lot of capital expenditures it is very likely to reduce the dividend to meet the capital needs.

A smaller oil company might very well have to reduce the dividend if it were to need cash say to take advantage of a new oil deposit for example.
References :

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