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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 8992  
Subject: Re: The 'sweet spot' in payout ratios Date: 2/2/2013 1:18 AM
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Payout Ratio (POR) is attained by dividing the (annual dividends paid) by the (net earnings) of the company. The latter is an IRS number, often containing all manner of ammortized expenses, straight-lined revenues and asset depreciation (real and personal property) using any number of 'useful life' MACRs tables or current year accelerated depreciation schedules. In short, EPS is not a very good measure of a company's financial health, making the POR equally unuseful in trying to determine the ability of the company to sustain its dividend.

Cash flow, net of non-cash expenses and non-operational revenue, as a ratio to the dividend paid is a much better measure of dividend sustainability.

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