How to Calculate Dividend Cover Ratio

Dividend Cover Ratio is the ratio of company's earnings over the dividend paid to shareholders. It is the inverse of the Dividend Payout Ratio. The lower the dividend cover, the higher the percentage of total earnings paid out as dividends to shareholders.

Learn how to calculate the dividend coverage ratio with the following examples:

Example 1:
PPC Company makes a net profit of $200,000 and declares a dividend of $40,000, then:
Dividend cover = Earnings available for dividend / Dividend announced = 200,000 / 40,000 = 5 times

Example 2:
Victoria plc has the following data:
Net Profit after tax $60,000
No. of ordinary shares 58,000
Preference dividend $2,000
Dividend per ordinary share $0.10

Then,
Earnings per Share = (Net Profit after tax - Preference dividend) / No. of equity shares = (60,000 - 2,000) / 58,000 = $1.00
Dividend cover = earnings per share / dividend per share = 1 / 0.10 = 10 times
This means that the firm's profit attributable to shareholders is 10 times the amount of dividend paid out.

* Next: Cash Dividend Coverage Ratio
1 comments:
irene 9:11 AM

I'm right to say that dividend cover used to measure the how much of the earnings is available for the company to pay dividends to the stockholders