AstraZeneca plc (ADR) (NYSE:AZN)
| Market cap | $56.83B |
| P/E ratio | 9.15 |
| EPS | $4.99 |
| Dividend | $2.85 |
| Div. yield | 6.32% |
From this quick overview, it appears AstraZeneca plc (ADR) (NYSE:AZN) is able to cover its dividend from EPS. Astra paid out dividends of $2.85 during 2012 on EPS of $4.99.
| $US | 03/01/2012 | 06/01/2012 | 09/01/2012 | 12/01/2012 | Average |
| EPS | 0.81 | 0.8 | 0.77 | 0.76 | 0.79 |
| Dividend | 1.95 | 0 | 0.9 | 0 | 0.71 |
| Cover from EPS | 0.4 | 0.0 | 0.9 | 0.0 | 1.1 |
However, on a quarterly basis the company is not able to cover its dividend. That said, taking into account the average figures across the year, shown at the end of the table it would appear that on a yearly basis AstraZeneca plc (ADR) (NYSE:AZN) is able to cover its payout at least once from earnings.
| $US Millions | 03/01/2012 | 06/01/2012 | 09/01/2012 | 12/01/2012 |
| Net Operating Cash Flow | 1540 | 2791 | 4100 | 6948 |
| Net Investing Cash Flow | 593 | 1353 | -1345 | -1859 |
| Cash Dividends Paid | -2505 | -2505 | -3665 | -3665 |
| Change in Capital Stock | -912 | -2505 | -2273 | -2206 |
| Issuance/(Reduction) of Debt, Net | (34) | (62) | 1492 | 917 |
| Net Financing Cash Flow | -3438 | -4156 | -4398 | -4923 |
| Net Change In Cash | -1291 | -20 | -1633 | 162 |
| Free Cash Flow | -657 | 719 | 17.2 | 1600 |
AstraZeneca plc (ADR) (NYSE:AZN)’s net cash flow leaves plenty of room for dividend payments after the deduction of investing cash flows.
The company was buying back stock during 2012 and it looks like this put pressure on cash flows. Indeed, in the third quarter of 2012, AstraZeneca plc (ADR) (NYSE:AZN) had to issue $2.5 billion of debt to fund part of its buybacks. However, AstraZeneca plc (ADR) (NYSE:AZN) has announced that it will not continue its buyback program into 2013, which will reduce the pressure on the company’s cash flows.
Still, excluding the effect of stock buybacks dividends remained well covered and the company actually had a positive free cash flow for the last three quarters of 2012.
AstraZeneca passes this dividend test now it has stopped buying back stock.
Windstream Corporation (NASDAQ:WIN)
| Market cap | $5.26B |
| P/E ratio | 28.84 |
| EPS | $0.31 |
| Dividend | $1 |
| Div. yield | 11.20% |
With a yield of 11.2% it appears that Winstream is not able to cover its dividend from EPS. The company paid out $1 in dividends during 2012 on earnings of only $0.31.
| $US | 12/01/2011 | 03/01/2012 | 06/01/2012 | 09/01/2012 | Average |
| EPS | -0.03 | 0.11 | 0.09 | 0.09 | 0.07 |
| Dividend | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 |
| Cover from EPS | -0.1 | 0.4 | 0.4 | 0.4 | 0.3 |
Windstream Corporation (NASDAQ:WIN)’s inability to be able to cover its dividend is highlighted further in its quarterly figures. On a quarterly basis the company has not been able to cover its dividend from EPS for the past twelve months. For the past four quarters the company has an average quarterly dividend cover of only 0.30.
| $US Millions | 12/01/2011 | 03/01/2012 | 06/01/2012 | 09/01/2012 |
| Net Operating Cash Flow | 309 | 438 | 398 | 407 |
| Net Investing Cash Flow | -126 | -176 | -288 | -343 |
| Cash Dividends Paid | -129 | -147 | -147 | -147 |
| Change in Capital Stock | 0 | 0 | 0 | 0 |
| Issuance/(Reduction) of Debt, Net | 135 | (272) | 15.3 | 148 |
| Net Financing Cash Flow | 9.3 | -426 | -137 | 13 |
| Net Change In Cash | 193 | -163 | -27 | 77.3 |
| Free Cash Flow | -25 | 54 | -51 | -79 |
Despite the fact that Windstream Corporation (NASDAQ:WIN)’s EPS are not sufficient to cover dividends, the company’s cash flows tell a slightly different story. If the investing cash flow is deducted from the operating cash flow, the company has plenty of cash left over to pay its dividend. Furthermore, in the first quarter of 2012, the company had enough free cash to buy back some debt.
However, despite the good performance in the first quarter of 2012, the company fell behind in the third quarter and was forced to issue debt to sustain the dividend.
Overall, Windstream Corporation (NASDAQ:WIN) is on a knife edge and I do not believe the current dividend is sustainable.
