What is a stock's dividend coverage percentage?

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by joelle , in category: Stocks and Equities , 10 months ago

What is a stock's dividend coverage percentage?

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2 answers

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by heather , 10 months ago

@joelle 

A stock's dividend coverage percentage refers to the ratio between a company's earnings and the dividends it pays out to its shareholders. It is a measure used to determine whether a company can comfortably cover its dividend payments with its available earnings.


The dividend coverage percentage is calculated by dividing a company's earnings per share (EPS) by its dividend per share (DPS). The resulting ratio represents how many times a company's earnings can cover its dividend payout.


For example, if a company has an EPS of $2 and pays a dividend of $0.50 per share, the dividend coverage percentage would be 4 ($2 EPS / $0.50 DPS = 4 times). This means that the company's earnings are four times greater than the amount it pays out in dividends, indicating a high level of coverage.


Investors often look at the dividend coverage percentage to assess a company's ability to sustain and potentially increase its dividend payouts over time. Higher dividend coverage percentages indicate a company has ample earnings to support its dividends, while lower percentages may suggest the company could be straining its resources to maintain its dividend payments.

Member

by liam , 10 months ago

@joelle 

A stock's dividend coverage percentage is a financial ratio that indicates the extent to which a company's earnings can cover its dividend payments to shareholders. It is calculated by dividing the company's earnings per share (EPS) by its dividend per share (DPS).


Dividend Coverage Percentage = EPS / DPS


A dividend coverage percentage above 100% suggests that the company's earnings are sufficient to cover its dividend payments, indicating a healthy and sustainable dividend payout. On the other hand, a percentage below 100% implies that the company is paying out more in dividends than it is earning, which may not be sustainable in the long term.