Send your questions directly to Jim Cramer and his team of analysts at [email protected] . Reminder, we can’t offer personal investing advice. We will only consider more general questions about the investment process or stocks in the portfolio or related industries. Question 1: What are your thoughts on the stability of FORD’s dividend? Thank you, Denise The quickest way to determine the sustainability of a company’s dividend is to consider it in relation to earnings and/or cash flow. The dividend payout divided by the earnings number is referred to as the “payout ratio” — below 100% is generally considered sustainable (so long as it’s positive). A negative number would imply negative earnings, which is obviously bad. A payout ratio above 100% would also be something to be concerned about because it means the company is paying out more than it makes and therefore eating into the cash on its balance sheet, an obviously unsustainable dynamic. That method is not the end all be all. We say this for two reasons. First, earnings fluctuate and therefore so does the payout ratio (assuming a non-variable dividend payment). Second, in addition to earnings fluctuations, we must always consider the financial health of the company. If we have reason to believe the earnings profile will change in the future (be it improvement or degradation) then we need to incorporate this into our view on the payout ratio. For this reason, it can be helpful to consider past performance as well as future expectations. Looking at Club name Ford (F), we see the following data from FactSet. On the basis of adjusted earnings per share (as indicated in the line below per-share dividend in the above table), Ford is generating enough income from normal operations (which is what adjusted earnings attempt to highlight, by excluding amongst other things, one-time charges) to cover its dividend to shareholders like us. That’s because all the numbers are positive in the “adjusted EPS…
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