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Dividend cover is a financial ratio that measures how many times a company’s net income can cover its dividend payments. It is calculated by dividing the company’s earnings per share (EPS) by the dividend per share (DPS). A high dividend cover ratio indicates that the company has ample earnings to cover its dividend payments, while a low ratio suggests that the company may struggle to maintain its current dividend levels. A dividend cover ratio above 2 is generally considered healthy, as it shows that the company is generating enough profits to pay dividends comfortably.
If a company has earnings per share of $5 and pays a dividend of $2 per share, its dividend cover would be 2.5, indicating strong dividend sustainability.
• Measures how easily a company can pay its dividends from earnings.
• Calculated by dividing earnings per share by dividends per share.
• A higher ratio indicates better dividend coverage.
Investors look at the dividend cover ratio to see if a company can afford to keep paying its dividends.
It indicates whether a company is generating enough profits to sustain its dividend payments.
A ratio above 2 is generally considered healthy, showing that the company can comfortably pay its dividends.
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