Dividend Sustainability: Method

Dividend Sustainability: Method

What it does

A dividend is paid in cash, out of what a company earns. This page reads the annual reports a company filed with the U.S. Securities and Exchange Commission (SEC) for up to ten fiscal years and sets the dividend beside the two things it can be paid from, the profit of the year and the cash the business produced, and beside the company's debt. It shows the dividend per share and how it changed, how many years in a row it was not cut, what share of profit and of free cash flow it took, and how fast it grew compared with earnings and cash flow. It states what each ratio is and the range it has been in. It gives no verdict on any dividend.

The numbers come from a copy of the SEC's public data held on this site (about 640 companies, annual figures, each in the currency the company reports in). Nothing is fetched when you open the page, and the site holds no share prices.

The method

Per share. DPS is the dividend declared per share for the fiscal year, EPS the diluted earnings per share, both adjusted for stock splits. Free cash flow per share is free cash flow divided by the diluted weighted-average share count.

change of the dividend = DPS_{this year} / DPS_{year before} − 1

Years in a row. Starting at the latest fiscal year and stepping back one year at a time, the page counts the steps in which the dividend per share did not fall, and the steps in which it rose, and stops at the first step that breaks the run. It can only count within the years held in the data (at most eleven), so a count that reaches the earliest year is a minimum, and the page says so.

Payout ratios. Div is the dividends paid in cash (cash flow statement), NI the net income, OCF the cash from operating activities, Capex the capital spending, Bbk the share repurchases.

payout ratio = Div / NI, formed when NI is positive
free cash flow FCF = OCF − Capex
free-cash-flow payout = Div / FCF, formed when FCF is positive
dividends plus repurchases against free cash flow = (Div + Bbk) / FCF

A ratio of 60 % means the dividends took 60 % of that year's profit (or free cash flow) and 40 % was left for everything else. Above 100 % the dividends were larger than the profit (or free cash flow) of that year, and the difference was paid from cash on hand, borrowing or sales of assets.

Debt.

net debt / EBITDA = (total debt − cash − short-term investments) / (operating income + depreciation and amortization)
interest cover = operating income / interest expense

Interest is paid before dividends, so a company's debt is part of the picture. Net debt / EBITDA is roughly the number of years of operating earnings needed to repay the debt; interest cover is how many times the year's operating profit paid the interest.

Range. For each ratio the lowest, the median (middle) and the highest value over the years shown, and the latest year's value.

Compound growth. For the dividend per share, EPS and free cash flow per share, over k = 3, 5 and 10 years ending at the latest fiscal year:

growth = (value_last / value_{k years before})^1/k − 1

It is formed only when both end values are positive, in one currency and on one share basis.

Yield and implied growth (only with a share price P that you type; r is the required return you enter, D the latest dividend per share).

dividend yield = D / P
constant-growth (Gordon) model: P = D (1 + g) / (r − g), which solved for g gives the implied growth g = (P r − D) / (P + D)

What it assumes

• That the company reports each line under a standard tag. A line under a tag of the company's own is not found and stays blank. Blank never means zero.
• That one fiscal year's profit and free cash flow are a fair measure of what was available that year. Both swing with one-time items; the dividend is usually set to be steady.
• That free cash flow is operating cash flow less capital spending. Acquisitions, lease payments and debt repayments also use cash and are not deducted.
• For the counts of years: that the dividend declared per share, as tagged, is the regular dividend. A special (one-time) dividend is inside the figure.
• For the implied growth: that dividends grow at one rate for ever and that your required return is right. Neither can be observed.

When it misleads

• One-time items in net income. A write-off or a tax charge cuts net income for one year and sends the payout ratio far above 100 % though no cash left the company (Coca-Cola's fiscal 2017, at 506 %, was a tax-reform charge). A one-time gain does the reverse. The median in the range table is steadier than any single year.
• One-time items in cash flow. A large tax or legal payment, or a swing in working capital, moves free cash flow for a year. Coca-Cola's free-cash-flow payout above 100 % in fiscal 2024 and 2025 sits beside a payout ratio on net income under 80 %; when the two ratios disagree, the cash flow statement in the filing shows why.
• Special dividends. A one-time dividend shows as a jump in one year and a fall in the next, which the count of years reads as a cut (Costco's fiscal 2017 and 2024 specials).
• Companies built to pay out. Real-estate investment trusts and partnerships pay out most of what they earn by design, and their net income carries heavy depreciation; payout ratios above 100 % on net income are usual for them. Their own measure (funds from operations) is not in the data.
• Banks and insurers. Operating cash flow and debt are part of the business, so free cash flow and net debt mean little; their dividends are governed by capital rules the page does not see.
• Growth rates use two years only. A weak first year or a strong last year gives a high rate, and the other way round.
• Dividends paid are not only common dividends. The cash line can include preferred dividends and payments to minority owners.
• Short or broken records. Eleven years at most, sometimes fewer; a change of reporting currency or an unconfirmed stock split stops every comparison across it. The past pattern of a dividend says nothing certain about the next one.

Worked example

The Coca-Cola Company, fiscal year ended 31 December 2025, in millions of US dollars as held in the data: dividends paid 8,779; net income 13,107; cash from operating activities 7,408; capital spending 2,112; share repurchases 746; net debt 35,166; operating income 13,762; depreciation and amortization 1,050; interest expense 1,654. Dividend declared per share: 2.04 in fiscal 2025 and 1.32 in fiscal 2015.

payout ratio = 8,779 / 13,107 = 67.0 %
free cash flow = 7,408 − 2,112 = 5,296
free-cash-flow payout = 8,779 / 5,296 = 165.8 %
dividends plus repurchases against free cash flow = (8,779 + 746) / 5,296 = 179.9 %
net debt / EBITDA = 35,166 / (13,762 + 1,050) = 2.37
interest cover = 13,762 / 1,654 = 8.32

dividend growth over ten years = (2.04 / 1.32)^1/10 − 1 = 4.45 % a year. The dividend per share rose in every one of the ten steps from fiscal 2015 to 2025; fiscal 2015 is the earliest year in the data, so the run may be longer.

With a share price of 62.40 typed for illustration (not a quoted price) and a required return of 8 %:

dividend yield = 2.04 / 62.40 = 3.27 %
implied growth = (62.40 × 0.08 − 2.04) / (62.40 + 2.04) = 2.952 / 64.44 = 4.58 % a year