Dividends. Dividends, unlike interest, are a distribution of profit to the shareholders. They are not a tax deductible expense. Most companies, including project companies, don't pay 100% of their profits out as dividends simply to be prudent and conservative. They will hold something back in case there is an emergency later. Legally, dividends can be paid if there's enough cash to pay them, the lenders allow it, and we'll come back to that in a moment. And enough profit has been made to be able to support the dividend. The issue of lenders allowing or not allowing a dividend is what we call a covenant. Frequently, and particularly for project companies, part of the loan agreement includes conditions attached to when a project company is or is not permitted to have a dividend. There could be a condition that's time-based. For example, you are not allowed to have a dividend until the fifth year of operation. They could be based on calculations like a debt coverage ratio, or they might be based on how much of the debt has been repaid. For example, you cannot have a dividend until 50% of the debt has been repaid. These sorts of conditions are called covenants, and when we are modeling dividends in the formula, we should be modeling a dividend. If all the covenants have been met, and they could be more than one covenant, we'd model it using an IF statement. If the condition is met, take the profit, multiply by the percentage of profit that's usually paid out as a dividend, and if the condition is not met, then zero. And whatever calculation we have there from that IF statement, show it as a negative cashflow, it is money leaving the project and going to the shareholders.
