The Role of Free Cash Flow in Dividends

In this episode, Paul, Kyle, and Niki dive into the importance of free cash flow when evaluating a company's ability to sustain dividend payments. They explain that free cash flow—what's left after all expenses—acts as the company's “what’s in your wallet” metric, crucial for both investors and personal household budgeting. Using relatable analogies, they compare dividends to discretionary spending, highlighting that reliable dividends stem from actual profits, not just optimistic accounting. They emphasize the concept of the payout ratio and urge investors to ensure companies aren't over-leveraging to pay dividends. The episode drives home the point that confidence in dividend investing comes from understanding how cash flow supports consistent returns.

www.planningmadesimple.com