Dividend Cover Ratio


The Dividend Cover Ratio is a measure of how well a company can maintain paying their dividend.

If the ratio is above 1, then that means that the company can cover their dividend with their earnings.

If the ratio is above 2, then that means that the company can cover their dividend twice with earnings. Above 3, thrice. Above 4, four times. And so on.

However if the ratio is below 1, then that means that the company's earnings do not cover the cost of the dividend.

This doesn't necessarily mean that the company will cut the dividend, but it does indicate that cutting the dividend is a possibility.

For example, it's possible that that the company will pay the dividend out of savings.

Or that the company will pay the dividend out of borrowed money.

Or that the company plans to raise earnings, or lower expenses in the coming year to cover the upcoming dividends.

Any of these would mean that the dividend could be maintained even with a Dividend Cover Ratio lower than 1.

The Dividend Cover Ratio is calculated by taking the Earnings Per Share (per year) and dividing by the Dividends Per Share (per year).

The Dividend Cover Ratio is the flip of the Dividend Payout Ratio.

Thus, the Dividend Payout Ratio is calculated by taking the Dividends Per Share (per year) and dividing by the Earnings Per Share (per year).

So where you want to see a Dividend Cover Ratio at least higher than 1 (or higher than 100%), you would want to see a Dividend Payout Ratio of less than 1 (or less than 100%).

Here's a list of dividend stocks with payout ratios less than 80%.

You can also sort this list of highest paying dividend stocks by payout ratio by clicking on the Payout Ratio link.