Understanding AFFO and NOI: Two Keys to Evaluating Dividend Safety
When evaluating dividend-paying investments, many investors focus almost exclusively on dividend yield. While yield is important, it only tells part of the story. The more important question is whether the company generates enough cash to continue paying that dividend.
Two financial metrics that help answer that question are Adjusted Funds From Operations (AFFO) and Net Operating Income (NOI).
AFFO is one of the best measures of the cash flow available to pay dividends, particularly for real estate investment trusts (REITs). Unlike net income, AFFO adjusts for non-cash accounting items and recurring capital expenditures, providing a more realistic picture of the cash a company has available for distribution to shareholders. A REIT with consistently strong AFFO is generally in a much better position to maintain—or even increase—its dividend over time.
NOI measures how profitable a company’s properties are before financing costs, taxes, depreciation, and amortization. Because NOI focuses solely on the performance of the underlying real estate, it helps investors determine whether the company’s assets are producing healthy and consistent income.
Neither AFFO nor NOI should be viewed in isolation. Together, they provide valuable insight into the financial strength of a company and the sustainability of its dividend.
At Fly High Investing, we believe successful dividend investing begins with understanding the quality of a company’s earnings—not simply chasing the highest dividend yield. By focusing on financial metrics like AFFO and NOI, investors can make more informed decisions and build a portfolio designed to generate reliable income for years to come.