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.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
See Tim Bennett's video tutorial: Five ways companies can cook cash flow.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.
-
Inflation holds steady at 3.8% ahead of BoE meeting
The rate of inflation did not rise in August, but the Bank of England is still expected to keep interest rates on hold tomorrow
-
Thousands of savers with £250k pensions take cash over tax-free money and IHT fears
With a record £70 billion withdrawn from pensions in the year to March, experts are concerned savers are making knee-jerk decisions without advice that could affect their long term wealth