Dividend Cover

Business, Legal & Accounting Glossary

Definition: Dividend Cover

Quick Summary of Dividend Cover

Earnings per share divided by dividend per share.

What is the dictionary definition of Dividend Cover?

Dictionary Definition

A company’s dividend cover is the number of times that its dividends could be paid out of its annual profits after tax.

Full Definition of Dividend Cover

The ratio between a company’s earnings (net profit after tax) and the net dividend paid to shareholders, calculated as earnings per share divided by the dividend per share.

So if a company has earnings per share of 8p and it pays out a dividend of 2.1p, the dividend cover is 8 / 2.1 = 3.80

Generally speaking, a ratio of 2 or higher is considered safe (in the sense that the company can well afford the dividend), but anything below 1.5 is risky. If the ratio is under 1, the company is using its retained earnings from a previous year to pay this year’s dividend.

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Modern Language Association (MLA):
Dividend Cover. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. September 23, 2021 https://payrollheaven.com/define/dividend-cover/.
Chicago Manual of Style (CMS):
Dividend Cover. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/dividend-cover/ (accessed: September 23, 2021).
American Psychological Association (APA):
Dividend Cover. PayrollHeaven.com. Retrieved September 23, 2021, from PayrollHeaven.com website: https://payrollheaven.com/define/dividend-cover/

Definition Sources

Definitions for Dividend Cover are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 26th April, 2020 | 1 Views.