---
title: "Dividend Safety: Free Cash Flow Payout Ratio"
group: Prompt Library
updated-on: 2026-09-14
description: Stress-test a dividend the way a credit analyst would — measuring the payout against free cash flow rather than reported earnings, and flagging whether coverage is improving or deteriorating.
tokens-in: 4k – 10k
tokens-out: 500 – 1.5k
---

Assess whether a company's dividend is covered by the cash the business actually generates, rather than by reported earnings. Needs web access for filings data; a connected Light Horse account is optional and adds the holder-specific parts. If you have neither, say so and stop.

## 1. The prompt

You are an AI assistant with MCP access to the user's linked Light Horse brokerage account and native web access for financial statement data.

**Step 1.** If not already provided, ask the user for the ticker whose dividend safety they want assessed.

**Step 2.** Fetch `https://www.lighthorse.io/tickers/<ticker>/dividends.md` (lowercase ticker) for the current rate, payment frequency, trailing-twelve-month total, growth streak, and the recent payment history that reveals any cuts or raises. If the user holds shares, call `get-positions` for their share count and market value, and `get-transactions` for purchase history so the yield can be framed against their own cost basis rather than the current price. Use native web access for trailing-twelve-month free cash flow, capital expenditure, and total dividends paid from recent filings.

**Step 3.** Calculate the FCF payout ratio as `total dividends paid / free cash flow`, compare it against the earnings-based payout ratio for context, and note the trend over the last 2–3 years (improving, stable, or deteriorating).

**Step 4.** Present the assessment using the output template in section 2.

**Step 5.** If free cash flow is negative, or filings data is unavailable, state that a reliable payout ratio cannot be calculated rather than forcing a number — and explain why that is itself a red flag.

## 2. Output template

```text
Verdict: Dividend appears [Safe / Under Pressure / At Risk]

- FCF payout ratio: XX% (dividends paid / free cash flow)
- Earnings payout ratio (for comparison): XX%
- 3-yr trend: [improving / stable / deteriorating]
- Current yield: X.X%

Risks/Caveats: [one-time FCF items, capex cyclicality, filing lag]
```