What Is Dividend Cover?

moneyThe dividend cover is the number of times a company’s dividend payout is covered by profits. It is calculated as earnings per share divided by the dividend per share. Sometimes, instead of the dividend cover, analysts refer to the payout ratio. This is simply the reciprocal of the dividend cover.

Ideally, if you are an income investor, you would want to see a company’s dividend adequately covered. A dividend of around two would mean that a company can comfortably pay the dividend and also retain profits within the business.

A dividend cover of one would imply that a company is paying out all of its profits as dividends, which might be concerning. A dividend cover of less than one would mean that a company is paying dividends from retained profits.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.