Dividend cover

This shows how many times over the profits could have paid the dividend. For example, if the dividend cover is 3, this means that the firm's profit attributable to shareholders was three times the amount of dividend paid out.

dividend cover = EPS ÷ DPS

Dividend cover is a measure of the ability of a company to maintain the level of dividend paid out. The higher the cover, the better the ability to maintain dividends if profits drop. This needs to be looked at in the context of how stable a company's earnings are: a low level of dividend cover might be acceptable in a company with very stable profits, but the same level of cover at company with volatile profits would indicate that dividends are at risk.

Because buyers of high yield shares tend to want a stable income, dividend cover is an important number for income investors. Dividend cover is the inverse of the dividend payout ratio

Cash dividend cover

Cash dividend cover is similar to dividend cover. It is simply how many times dividends could have been paid out of cashflow rather than profits

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