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Metrics & Definitions

FCF Payout Coverage: Is the Dividend Funded by Cash?

2 min read
FCF payout coverage

Learn how FCF payout coverage measures dividend sustainability using actual cash flow instead of accounting earnings.

FCF Payout Coverage

FCF payout coverage compares free cash flow to dividend payments. It answers: "Can the company pay its dividend from actual cash flow?"

The Formula

FCF Coverage = Free Cash Flow per Share ÷ Dividend per Share

Interpretation

  • >1.5: Excellent - dividend well covered with room to spare
  • 1.0-1.5: Adequate - dividend covered
  • <1.0: Warning - dividend exceeds cash flow

How Dividend.Direct Uses It

FCF sustainability contributes 15 points to Quality Score and earns an Opportunity Rank bonus.

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