Dividend Sustainability

Whether the current dividend can continue without starving the business or relying on new debt.

Formula

Judged from free-cash-flow cover, payout ratio, debt covenants, and the outlook for earnings. There is no single ratio.

What it means

A sustainable dividend is one the business can pay from ongoing cash generation after the spending it needs to keep earning that cash.

Boards are reluctant to cut, so a dividend can outlive the earnings for a while, funded by cash reserves or borrowings. That period is not sustainability. It is a delay.

How to read it

Cover above 1 on normalised free cash flow, a payout that is not rising faster than earnings, and no covenant that blocks distributions, is the comfortable set.

What to watch

A yield that is far above peers and far above the company's own history is the market saying the dividend may not last. Believe the cover, not the yield, when they disagree.

This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.