Q: Good morning,
In an answer to Danny on August 13, you said that BCE's trailing twelve months dividend is around $3.7B, which is covered by the operating cash flow of $7.6B, I read a post from Reddit yesterday that says BCE's free cash flow payout ratio is 109% stating that its dividend is covered by debt and equity dilution. Can you explain why these numbers are so wildly different? Thanks very much,
In an answer to Danny on August 13, you said that BCE's trailing twelve months dividend is around $3.7B, which is covered by the operating cash flow of $7.6B, I read a post from Reddit yesterday that says BCE's free cash flow payout ratio is 109% stating that its dividend is covered by debt and equity dilution. Can you explain why these numbers are so wildly different? Thanks very much,
5i Research Answer:
The numbers are so different because free cash flow makes the further adjustment, removing CAPEX. The formula is FCF=OCF-CAPEX. BCE is evidently a very capital intensive business, over the last twelve months, CAPEX was $4.168B. CAPEX includes a wide range of items, some of which may be dicretionary. So the Reddit user is correct in regards to a high FCF payout ratio, but we prefer to look at OCF because it tells us what is generated from the business operations, and does not remove larger or what may be 'one-off' purchases. It is possible that dividend is financed through debt to an extent, but BCE still has a large asset base and cash flows to cover payments.