I recently received some advice from readers of what they want to see in my Dividend Stock Tracker. I do take their advice seriously under considerations but I would like to take things one step at a time to improve it.
The objective of the tracker still remains as an accessible page to track all Blue Chip and Large Dividend Yielding Stocks on the SGX.
I try to incorporate what I think are important indicators to good dividend companies and one of the things that I am not too pleased with the old Tracker was the use of Net Operating Cashflow (NOPAT).
I wrote in the past on what is the difference between Operating Cashflow, EBITDA, Earnings and Free Cashflow. For readers who want to know in depth about this can view the article here.
Why use Free Cashflow
In the past when I use operating cashflow, it is a good indicator of how much hard cash the company was bringing in. However, the cash brought in is not just to pay dividends but
- To buy plants and equpiments or replace them as capital expenditure (CAPEX)
- Pay off existing debts
- Payout as dividends
- Retain as cash in company
Comparing Operating Cashflow Yield vs Dividend Yield is not a good reflection as most company (other than REITs) have a level of CAPEX.
Only after paying for CAPEX do we know how much “free” cash the company have to maneuver.
So essentially Free Cashflow (FCF) = Operating CF – CAPEX
So how do we use it? For me I use it
- as a starting indication of whether a company is paying out more dividends then they are bringing in.
- to find companies with good free cashflow growth rate. Take a look at companyes like Google and Microsoft.
Case Study: VICOM and SPH
Both these stocks provide a nice dividend yield on my dividend stock tracker. VICOM at 4.5% and SPH at 6.3%.
So if we are looking for yield then of course we would choose SPH right?
Vicom’s cashflow after taking into consideration capital expenditure is 7.2%. This means that if they don’t want to retain cash or pay off debt level, they can actually pay out 7.2% dividend yield based on how much they earn.
They even have a low payout ratio at 42% ( A note: my payout ratio is payout of operating cashflow instead of net income)
SPH on the other hand have a free cashflow yield of 5.1%. This means that it is paying out more than its earned after factoring capex.
So where did the 6.3%-5.1% = 1.2% yield come from? That, for a company can come from
- Existing Cash Holdings ( See Balance Sheet)
- Take on more debts ( See Cashflow Statement under Financing)
Its payout ratio is high at 115% as well.
If you ask me, I would say Vicom looks the safer dividend since it has been operating within its capital structure better.
With this in place, you can see a lot of stocks on the stock tracker with red free cashflow. what does this mean? If the dividend payout is more than free cashflow, its flaged as red in color.
There are even companies with negative free cashflow like SP Ausnet.
Hope this is helpful.
I run a free Singapore Dividend Stock Tracker available for everyone’s perusal. It contains Singapore’s top dividend stocks both blue chip and high yield stock that are great for high yield investing. Do follow my Dividend Stock Tracker which is updated nightly here.
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Thursday 12th of March 2015
Hi Drizzt: I am a fan of your website, may I know what is the fomula to compute Free cash flow FCF ad FCF into google finance spreadsheet? I was strugelling to find a way to lookup the value from yahoorefdata and other sources thank you
Wednesday 30th of May 2012
hi, i understand that dividend yield = annual dividend per share / share price.
Can i understand that when u say "Vicom’s cashflow after taking into consideration capital expenditure is 7.2%", you are using free cash flow per share / share price to get 7.2%?
Sunday 3rd of June 2012
Yes Ethan, as listed in the table 7.2% is derived from Free cash flow per share dividend by share price. Its different from dividend yield. The safe assumption is that dividend yield must be < free cash flow yield.
Sunday 11th of March 2012
Good post! I would like to ask you further as I don't get it on the part you mentioned:
"SPH on the other hand have a free cashflow yield of 5.1%. This means that it is paying out more than its earned after factoring capex.
So where did the 6.3%-5.1% = 1.2% yield come from?"
and on the conclusion
"With this in place, you can see a lot of stocks on the stock tracker with red free cashflow. what does this mean? If the dividend payout is more than free cashflow, its flaged as red in color."
I see quite number of stock on your tracker with Earning Yld < Dividend Yld and it's not flag with red color.
I would like to know what are other criteria it is flaged as red.
Sunday 11th of March 2012
to the first question, free cash flow shows the cold hard cash SPH have after paying for capital investments that replenishes existing assets or geared for future growth. what they can do with this cold hard cash is to pay you as dividends, retain for future use, do stock buybacks or pay down debts. Or a combination of both. When free cash flow is 5.1% and they are paying out 6.3% they have to find additional cash to pay that 1.2%. where does it come from? typically, a company can borrow on a short term basis or tapped from their existing cash holdings to pay this. its ok to do that 1 year but consistenly for a few years would show that the company is paying out too much.
on the second question, there will not be any red or green indicator for earnings yield. that is essentially the net profit earned dividend by market capitalisation. i only did it for free cash flow to flag red flag.
do note that some businesses using net profit is better gauge than free cash flow while for others it is better to use free cash flow.
Saturday 6th of August 2011
Firstly, thank you so much for this awesome site. It is really a gold mine.
I had been interested in investing in stocks that pay high dividends for some time and came across this page.
I do have a very "newbie" (if you will) or silly question to ask but how do i check the frequency of the dividend payout of each stock? E.G does it pay out quarterly or yearly etc.. and how much do they pay out
I really appreciate the advise.
Thanks once again and I will be telling my friends bout this site- hope you do not mind
Sunday 11th of March 2012
hi David thank you for valuing what i share. For me i look at the past history. a good place would be the corporate actions page in the SGX. just filter to the stock in question and look at the past frequency of payouts. http://www.sgx.com/wps/portal/sgxweb/home/company_disclosure/corporate_action
i do not have a simple solution, if the company changes the payout then the annual report should tell.
Monday 25th of April 2011
Hi Drizzt, stepping on your site is like stepping gold for me cos i have been searching for sources of high dividend stocks for some time le. Thanks alot for the hardwork. =)
On e side note, M1 and Comfort Delgro has dividend % is higher than the Free cashflow but are not flagged in red. Is there any reason for this?
Wednesday 27th of April 2011
hi MS, thanks for visiting. Hope you can tell more of your friends looking for high dividend stocks this resource.
I decide to tweak my dividend stock tracker abit. I would expect alot of them to have negative free cash flow or div < free cash flow. in the new look, if div < FCF it will be darken but not in red.
do note that M1 and Comfort might suffer one or 2 year lower FCF. My general assessment is that a lot of the blue chips do not fared well consistently in this area.
The exception is Singtel, Starhub, Vicom for example.