How do your cash flow and dividends models work?

Answer

We predict cash flows by combining human analyses of each tracked company and triple-validated revenue forecasts with stochastic free cash flow (CFADS¹) and free cash flow-to-equity (FCFE) retention rate models that consider the lifecycle and systematic characteristics of each company. The combination of expected free cash flow and retention rates is the expected dividend stream of the firm.

Infrastructure project companies with a finite life are expected to payout all FCFE in their last years. Infrastructure corporates like utilities are more like perpetuities and given a very long horizon and cash flow growth trend. Long term financial structure assumptions are made based on the typical and individual leverage paths followed by each firm.