1) How do you know if the dividend is 'safe'?

The traditional payout ratio is not the way...

The classic payout ratio is simply:

Dividends Paid / Net Income

This is flawed

Companies do not pay dividends from their net income balance

2) If we want to see 𝐡𝐨𝐰 𝐦𝐮𝐜𝐡 capital the company has available to spend on dividends, debt repayment, share buybacks and investments

We can find the Free Cash Flow

Which is simply Cash from Operations - Capex

3) Here is an excerpt from AT&T $T 's FY 19 Cash Flow Statement

They generated $48.66 Billion in Cash Flow from Ops

They spent $19.43 Billion in Capital Expenditure

Their Free Cash Flow is $29.23 Billion

They paid out $14.88 Billion in dividends that year

4) So based on the FCF Payout ratio

AT&T only spent 50% of their FCF on dividend payments

If we used the Net Income payout ratio, that figure would be closer to 100%

AT&T had $29 Billion to utilize, and only $14.8 Billion was used to pay dividends

5) I personally prefer to look at Free Cash Flow to Equity

Which is

CFO - Capex - Net Debt

This way, it accounts for the debt and reinvestment and shows you ONLY what is left for dividends and buybacks

Often cited as the 'potential dividend' metric

Hope that helps

6) FYI

AT&T's FCFE in 2019 was $44.6 Billion

Meaning they paid only 33% of their free cash flow to equity in dividends

$T