What is a stock's dividend coverage ratio?

by jaylin.bartell , in category: Stocks and Equities , a year ago

What is a stock's dividend coverage ratio?

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1 answer

by london_lueilwitz , a year ago


A stock's dividend coverage ratio is a financial metric used to determine the ability of a company to pay its dividends to its shareholders. It is calculated by dividing the company's earnings per share (EPS) by the dividend per share (DPS).

The dividend coverage ratio provides an indication of whether a company's earnings are sufficient to cover the dividend payments it distributes to its shareholders. A ratio greater than 1 indicates that the company is generating enough profits to cover its dividend obligations, while a ratio less than 1 suggests that the company may not have enough earnings to sustain its dividend payments.

Investors often use the dividend coverage ratio to assess the financial health and stability of a company and its ability to continue paying dividends in the future. It is important to note that a high dividend coverage ratio does not necessarily mean that a company is a good investment, as other factors need to be considered, such as the company's growth prospects, industry dynamics, and overall financial position.