Free cash flow per share

Free cash flow per share takes the annual cash flow available to pay dividends and divides by the number of ordinary shares in issue.

Many investors seek firms that are good dividend-payers. But what makes a firm a reliable bet? One of the keys to assessing dividend strength is cash flow.

Free cash flow per share takes the annual cash flow available to pay dividends and divides by the number of ordinary shares in issue. Free cash flow is operating cash flow after non-discretionary items, such as bank interest and tax have been deducted (a deduction for essential capital expenditure may also be made).

In theory, that leaves the cash available to pay dividends the higher the better. In practice, the directors will have a dividend policy, but the higher a firm's free cash flow, the more likely it is the directors will hit dividend targets.

See Tim Bennett's video tutorial: Five ways companies can cook cash flow.

Most Popular

Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
How you can profit from the power of the grey pound
Share tips

How you can profit from the power of the grey pound

Higher life expectancy and surging asset prices have proved a boon for the baby-boomer generation, which has accumulated vast wealth. Younger generati…
10 Sep 2021