06-26-2022, 12:33 PM
(01-29-2022, 03:47 AM)fenders53 Wrote: Dividend is still covered by FCF.
Dusting this thread off yet again, because I am getting the feeling that I have some fundamental misunderstandings that I would like to correct. I hope I'm just missing something obvious and simple -- I must be -- but haven't been able to figure it out on my own, yet.
I've been fixated on Fenders' statement that MO's dividend is still covered by FCF. The dividend certainly isn't covered by net earnings, and so I've been trying to understand how FCF can be so much higher than earnings. Maybe for a quarter or two here and there, but having a dividend higher than earnings for a sustained period of time, as MO is now doing, just seems like shenanigans to me!
So I get that FCF is calculated by taking net cash from operating activities and subtracting capital expenditures. Using figures from MO's 2021 Annual Report, that is 8,405 minus 169, resulting in a FCF value of $8,236 (in millions). Great so far. That does indeed more than cover the $6,446 in dividends paid out in 2021. In fact, it falls right about at the 80 percent target.
BUT BUT BUT....
$6 billion of MO's $8.4 billion in FCF for 2021 comes from "losses from equity investments" ($5,979, if you're looking for it -- see page 54 of the 2021 annual report).
As best I can tell -- and again I may be completely misreading things -- this $6 billion is a result of using the equity method of accounting for its ownership stake in ABI (see pages 64-65 of the annual report).
And as far as I can tell, it is a $6 billion LOSS. From page 13 of the report: "As a result, we recorded a non-cash, pre-tax impairment charge of $6.2 billion for the nine and three months ended September 30, 2021 to (income) losses from equity investments in Altria's condensed consolidated statements of earnings (losses)"
So.... how exactly does a $6 billion paper LOSS in its ABI investment become POSITIVE cash flow that somehow covers the actual dividend?
(If you're willing to dig into the 2021 annual report with me, the simplest thing to do might be to word search for "5,979" -- that will take you to all of the relevant spots I've been looking at and trying to make sense of).