Yield alone says little about whether a payout is comfortable. The same three companies look very different once returns are set against free cash flow.
| Company | Total shareholder yield | Returns as % of free cash flow | Dividend cover |
|---|---|---|---|
| CHH | 3.9% (div. 1.1% + buyback 2.8%) | 162% | 2.2x |
| GABC | 2.4% (div. 2.4% + buyback 0.0%) | 25% | 4.1x |
| MZTI | 5.1% (div. 3.8% + buyback 1.3%) | 70% | 1.9x |
CHH returns more than it generates. In the first half it drew $96.3M net on its revolving credit facilities while returning $133.8M, and after quarter end it entered a $500 million term loan whose covenants limit dividends and repurchases. GABC returns a quarter of its free cash flow and has no buybacks. MZTI sits between: payouts did not exceed free cash flow, but dividends are covered less than twice.
Free cash flow is operating cash flow less capex. For GABC, a bank, the measure is shown for context only; the valuation does not use it. Buyback figures are gross cash, not net of share issuance. Figures are as published in each note.
Related notes: Choice Hotels (CHH) · German American Bancorp (GABC) · The Marzetti Company (MZTI)
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