The biggest financial discovery of the last decade is cash flow.
Cash flow created the Cloud Czars. Cash flow is why Amazon is worth $1.6 trillion while AT&T is worth one-eighth as much.
Cash flow has always existed. But it was something to spread around. It was profit. When calculating whether a company could afford its dividend, analysts would do it in terms of cash flow.
That’s because business accounting isn’t just about cash. It’s about all the kinds of money that flow through the business. It’s about loans and equity, about costs that are capitalized and those that are written off on taxes.
Dividends paid for with cash flow are the lifeblood of conservative investing. Financial planners make their money moving retired folks’ money into bonds or companies that pay a regular dividend. A company that pays fat, regular dividends has its stock bought by retirement funds who don’t make trouble for management.
Tech companies don’t like to pay dividends. The thinking goes, if I’m giving money to shareholders it’s because I don’t have any other use for it. Until the last few decades very few tech companies paid dividends. They saw capital gains, the rise in the stock price that comes with growth and profit, as the shareholders’ reward.
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