Dividend cover
Dividend cover, also commonly known as dividend coverage, is the ratio of company's earnings (net income) over the dividend paid to shareholders, calculated as net profit or loss attributable to ordinary shareholders by total ordinary dividend.[1] So, if a company has net profit after tax of 2400 divided by total ordinary dividend of 1000, then dividend cover is 2.4.[2] The dividend cover formula is the inverse of the dividend payout ratio.[3]
Generally, a dividend cover of 2 or more is considered a safe coverage, as it allows the company to safely pay out dividends and still allow for reinvestment or the possibility of a downturn.[1][3] A low dividend cover can make it impossible to pay the same level of dividends in a bad year's trading or to invest in company growth. A negative dividend cover is both unusual and a clear sign that the company is in trouble.[2] The higher the cover, the more unlikely it is that the dividend will fall the following year.[4]
See also
- Liquidating dividend
- Special dividend
References
- ^ a b Stevenson, David; Mladjenovic, Paul (2012). Investing in Shares For Dummies. Chichester, England: John Wiley & Sons. ISBN 978-1-119-96641-8.
- ^ a b Law, Jonathan; Owen, Gary (2010) [1995]. A Dictionary of Accounting. Oxford and New York: Oxford University Press. pp. 155–156. ISBN 978-0-19-956305-0.
- ^ a b Hobson, Rodney (2012). The Dividend Investor: a Practical Guide to Building a Share Portfolio Designed to Maximise Income. Petersfield, England: Harriman House Limited. ISBN 978-0-85719-234-9.
- ^ France, Mr Richard (2013). Finance for Purchasing Managers: Understanding the Financial Impact of Buying Decisions. London and New York: Gower Publishing, Ltd. ISBN 978-1-4094-6420-4.
- v
- t
- e
- Buffett indicator
- Cyclically adjusted price-to-earnings (CAPE)
- Capitalization rate (Cap Rate)
- Cash return on cash invested (CROCI)
- Debt-to-equity (D/E)
- Dividend cover
- Dividend payout
- Earnings yield (E/P)
- Enterprise value/EBITDA (EV/EBITDA)
- Enterprise value/gross cash invested (EV/GCI)
- Enterprise value/sales (EV/Sales)
- Loan-to-value (LTV)
- Omega
- Operating margin
- Price-to-book (P/B)
- Present value of growth opportunities (PVGO)
- Price/cash flow (P/CF)
- Price-earnings (P/E)
- Price-earnings to growth (PEG)
- Price-sales (P/S)
- Profit margin
- Return on assets (ROA)
- Return on net assets (RONA)
- Return on capital (ROC)
- Return on capital employed (ROCE)
- Return on equity (ROE)
- Return on tangible equity (ROTE)
- Risk-adjusted return on capital (RAROC)
- Risk return (RRR)
- Sharpe
- Short interest (SIR)
- Sortino
- Sustainable growth (SGR)
- Treynor
This article about investment is a stub. You can help Wikipedia by expanding it. |
- v
- t
- e