We canobserve thetendency of firms to pay out less to
stockholdersthantheyhaveavailable infreecashflowsto
equitybyexaminingcashreturnedtostockholderspaidasa
percentageoffreecashflowtoequity.In2004,forinstance,
theaveragedividend-to-freecashflowtoequityratioacross
allfirmsontheNewYorkStockExchange(NYSE)was 60
percent.Figure3.4showsthedistributionofcashreturnedas
a percent of FCFE across all firms.
FIGURE3.4DividendsasPercentofFCFE:U.S.Companies
in January 2005
Source:Compustat database: 2004.
Apercentage lessthan 100 percent meansthatthefirm is
payingoutlessindividendsthanithasavailableinfreecash
flowsandthatitisgeneratingsurpluscash.Forthosefirms
thatdidnotmakenetdebtpayments(debtpaymentsinexcess