dividend cover

dividend cover
Fin
the number of times a company’s dividends to ordinary shareholders could be paid out of its net after-tax profits. This measures the likelihood of dividend payments being sustained, and is a useful indication of sustained profitability.
EXAMPLE
If the figure is 3, a firm’s profits are three times the level of the dividend paid to shareholders.
     Dividend cover is calculated by dividing earnings per share by the dividend per share:
Earnings per share/dividend per share = dividend cover
If a company has earnings per share of $8, and it pays out a dividend of 2.1, dividend cover is:
8/2.1 = 3.80
An alternative formula divides a company’s net profit by the total amount allocated for dividends. So a company that earns $10 million in net profit and allocates $1 million for dividends has a dividend cover of 10, while a company that earns $25 million and pays out $10 million in dividends has a dividend cover of 2.5:
10,000,000/1,000,000 = 10 and 25,000,000/ 10,000,000 = 2.5
A dividend cover ratio of 2 or higher is usually adequate, and indicates that the dividend is affordable. A dividend cover ratio below 1.5 is risky, and a ratio below 1 indicates a company is paying the current year’s dividend with retained earnings from a previous year: a practice that cannot continue indefinitely. On the other hand, a high dividend cover figure may disappoint an investor looking for income, since the figure suggests directors could have declared a larger dividend.
See also payout ratio

The ultimate business dictionary. 2015.

Игры ⚽ Нужно решить контрольную?

Look at other dictionaries:

  • dividend cover — The number of times the dividend per share can be divided into the earnings per share (that is, the number of times a company could pay its recent dividend out of its net profit). Practical Law Dictionary. Glossary of UK, US and international… …   Law dictionary

  • dividend cover — An accounting ratio defined as net earnings per share divided by net dividend ( dividends) per share. The purpose of the ratio is to identify how much of a company s profits are being distributed to shareholders and how much is being retained to… …   Financial and business terms

  • dividend cover — The number of times a company s dividends to ordinary shareholders could be paid out of its net profits after tax in the same period. For example, a net dividend of £400,000 paid by a company showing a net profit of £1M is said to be covered 2½… …   Accounting dictionary

  • dividend cover — The number of times a company s dividends to ordinary shareholders could be paid out of its net profits after tax in the same period. For example, a net dividend of £400, 000 paid by a company showing a net profit of £1M is said to be covered 2½… …   Big dictionary of business and management

  • dividend cover — /ˈdɪvədɛnd kʌvə/ (say divuhdend kuvuh) noun the number of times that the declared dividend is covered by a company s net profit …  

  • Dividend cover — Categories: Investment stubsDividends …   Wikipedia

  • dividend cover — noun the ratio of a company s net profits to the total sum allotted in dividends to ordinary shareholders …   English new terms dictionary

  • dividend cover — / dɪvɪdend ˌkʌvə/ noun the ratio of profits to dividends paid to shareholders …   Dictionary of banking and finance

  • Dividend stripping — is the purchase of shares just before a dividend is paid, and the sale of those shares after that payment, i.e. when they go ex dividend. This may be done either by an ordinary investor as an investment strategy, or by a company s owners or… …   Wikipedia

  • Dividend payout ratio — is the fraction of net income a firm pays to its stockholders in dividends: The part of the earnings not paid to investors is left for investment to provide for future earnings growth. Investors seeking high current income and limited capital… …   Wikipedia

  • equity dividend cover — A ratio that shows how many times the dividend to ordinary shareholders can be paid out of the profits of a company available for distribution. The higher the cover, the greater the certainty that dividends will be paid in the future …   Accounting dictionary

Share the article and excerpts

Direct link
… Do a right-click on the link above
and select “Copy Link”