Quarterly Report 2024 Q2
The investment world has been smitten with picking stocks based on free cash flow
The use of stock or option-based compensation schemes is common across all industries
Non-Dividend Payers Have Increasingly Sourced Free Cash Flow from Non-Cash Compensation
The Free Cash Flow Story
Higher Free Cash Flow Margins Outperformed Without Runaway Valuations
Free cash flow yield, defined as the amount of the free cash flow per dollar of market capitalization, is a useful valuation metric
Let's see how the free cash flow story intersects with dividend investing
Dividend Investing Through the Free Cash Flow Lens
When Will Investors Recognize the Impact of Non-Cash Compensation?
If we back non-cash compensation out of free cash flow, the picture changes significantly
From a valuation perspective, stocks in the top half of dividend yields had much higher free cash flow yields
'Magnificent 7' Through the Free Cash Flow Lens
Magnificent 7 Non-Cash Compensation
Adjusting for Non-Cash Compensation, the Magnificent 7's Advantage Fades
For the Magnificent 7, the portion of free cash flow coming from non-cash executive compensation is trending up
Use of Free Cash Flow: Dividend Payers vs. Non-dividend Payers
Companies Have Varying Uses of Free Cash Flow--We Prefer Dividends
If free cash flow is not used for dividends or buybacks, where does it go?
Do Stock Buybacks Help Investors?
Management Mischief: Buybacks Don’t Always Result in Fewer Shares
Elon Musk's 2018 Pay Package
Are Dividends Better Than Buybacks?
When investors ask the question
Past and Future Dividends Are Highly Correlated
But Past and Future Buybacks Are Less Linked
Our Conclusions
Not only do firms with higher dividend yields have better-quality free cash flow, but they also use it in a more shareholder-friendly manner
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