Q: Hi 5i. I think the figure you like to use to measure a company's dividend payout is the ratio of dividend to free cash flow. I think Peter even wrote about this recently in the FP. For the above two companies, could you please tell me what the dividend-to-free cash flow currently is? Is it following a perceptible trend of rising or falling?
5i Research Answer:
ADN's payout ratio on free cash flow is 100% and has been at that level for several years. RSI had weak free cash flow last year so the ratio was well above 100%. However in prior years it has bounced around from 60% to 90%, with the occasional 100%. While free cash flow is a good metric, we think looking at operating cash flow is important as well, to show how well the actual operating business is doing.