CompanyGraph
Measures total cash distributed to shareholders during the period, exposing the company's actual cash commitment to returning capital rather than retaining it.
Dividends paid is the total cash distributed to shareholders during the period. It appears under financing activities on the cash flow statement.
Dividends paid represents cash distributed to shareholders as a return on their investment. This financing activity reduces retained earnings and company cash while providing income to investors. Dividends represent a concrete commitment to shareholders—unlike buybacks, dividend cuts carry significant stigma and often trigger sharp stock price declines.
Types of dividends:
- Regular dividends: Recurring quarterly or annual payments
- Special dividends: One-time distributions, often from asset sales or excess cash
- Preferred dividends: Fixed payments to preferred shareholders (take priority)
Cash flow presentation:
Dividends paid: $(400) million or Cash dividends paid to common shareholders: $(400) million
Why dividends matter:
- Income generation: Primary return source for income-focused investors
- Discipline signal: Regular dividends impose capital allocation discipline
- Quality indicator: Consistent dividends suggest stable cash generation
- Total return component: Dividends plus price appreciation equals total return
Analysing dividend sustainability:
- Payout ratio: Dividends / Net Income; below 60% generally sustainable
- Cash flow coverage: Operating cash flow / Dividends; higher is safer
- Free cash flow coverage: FCF / Dividends; should exceed 1.0
- Debt levels: Highly leveraged companies have less dividend flexibility
Dividend growth analysis:
- Growth rate: Consistent dividend increases signal confidence
- Years of increases: Dividend aristocrats have 25+ years of growth
- Increase magnitude: Large increases indicate strong cash generation
Warning signs:
- Payout > 100%: Paying more than earnings; unsustainable
- Dividends exceeding FCF: Funding dividends from cash reserves or debt
- Flat dividends: No increases may precede cuts
- Special dividends substituting: Irregular payments replacing regular dividend growth
Dividends represent a binding commitment. Companies with long dividend histories face enormous pressure to maintain payments. Evaluate dividend safety thoroughly—a high yield from an unsustainable dividend is a trap, not an opportunity.