Q: Hi, follow up the on the previous question about AQN and their dividend versus Cashflow and earnings: The dividend is $0.44 per share but the Free Cashflow per share is -$0.35. Doesn't that mean that if they killed the dividend the company would have free cash per share of $0.09 and therefore be adding cash per quarter instead of losing cash?
Am I reading this wrong? AQN seems to be reducing the financial capacity of the company to pay the dividend. Wouldn't a more appropriate practice be to pay the dividend out of free cash?
Am I reading this wrong? AQN seems to be reducing the financial capacity of the company to pay the dividend. Wouldn't a more appropriate practice be to pay the dividend out of free cash?
5i Research Answer:
Yes, free cash flow is after all expenses. That being said, we do prefer to look at operating cash flow when looking at dividends. This is because a lot of spending is discretionary, and also a lot of spending is tied to creating future growth. While a company may not want to 'lose' cash each year, companies need to be proactive and spend for the future as well. For example, in 2022, AQN added more than $250M in assets during the year, which 'should' set up future growth in earnings and cash flow.