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  • uavmx
    Is no one concerned with MRK 162% payout ratio? I'm interested in the stock, but that number worries me, can someone explain?
    10/29/11
    Reply (7)
    • Michael Stuart: Did you check the payout/FCF ratio? Earnings are easier to manipulate than FCF...
      10/29/11
    • uavmx: I'm not sure how to do that. Do you mean simply divide PR by the FCF? What does that number tell you?
      10/30/11
    • uavmx: Their FCF is stellar at 4100M. So is the Payout Ratio even that telling? If they still have a ton of cash left over.....
      10/30/11
    • Michael Stuart: If you use FCF instead of earnings then you'll have a better idea of what the firm can actually afford to pay.
      10/30/11
    • Michael Stuart: Normally, it works the other way, high earnings with a lower FCF is suspect (look at the big banks' recent reporting)
      10/30/11
    • Michael Stuart: But high FCF with low reported earnings usually means they can support the dividend but are using some earnings cash for other purposes
      10/30/11
    • Michael Stuart: Basically, FCF is usually a better proxy metric than earnings for whether a firm can support a dividend or not. At least IMHO.
      10/30/11