Post by
NewOpportunist on Dec 19, 2024 11:08pm
Payout ratio explained
The astronomical payout ratios of over 200% are based on earnings/or earnings per share. Telus pays about 2.3bn in dividends and income from continuing operations is only projected to be about 0.9bn in 2024 and 1.3bn in 2025 (RBC numbers), so based on that you get payout ratios that are that high.
HOWEVER, that is NOT how you should look at payout ratios! Telus has about 4bn in depreciation & amortization expenses per annum, which lowers the net income, HOWEVER doesn't constitute a cash outflow.
So when looking at their ability to pay dividends, you have to add back the depreciation & amortization of 4bn to net income and then deduct capex to arrive at a cash flow that can be used for paying dividends. This year that cash flow number comes to about $1.4 per share, a smidge below the cash dividend. HOWEVER, as capex is trending down, with peak spending behind us according to management, the payout ratio should move below 100% by 2026 and is certainly nowhere close to 200% as stated in some comments focusing on EPS instead of CASHFLOW!
Comment by
Red_Deer on Dec 19, 2024 11:19pm
Hey NewOpportunist__EXCELLENT EXPLANATION !!! You BEAT ME to IT !!! I WAS JUST GOING To MAKE the SAME COMMENTS Regarding HOW MISLEADING Any Pay Out Ratio BASED UPON Net Income__RATHER Than on Actual CASH FLOW_IS