No. of Recommendations: 0
I think we may just be talking about risk.

No doubt the only reason to own companies and company stock is for dividends. Dividends paid in this period, or dividends paid in the future.

Both dividends and cash flow have value, but cash flow has a higher degree of risk associated with it (many things can go wrong between the company making and retaining its cash flow and turning it into dividends for you at some point in the future).

Analysing the risk associated with cash flow goes back to basics of investing in companies;

@ Is the management honest and have they been rational in their capital allocation decisions?
@ Have they had (and are they likely to continue to have) high returns on shareholder funds?
@ Does the industry structure - levels of consolidation, barriers to entry, industry growth rate - suggest that competition will not erode margins in the future.
@ Does the company have unique intellectual capital - brand, innovation power, patents, etc. - that can support its ability to compete effectively without lowering marings.

In understanding the risk associated with the company, it becomes possible to decide on a reasonable discount rate for the cash flow, that compensates for the risk that the company is exposed to in holding onto this cash for you.

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