What is a stock's dividend safety percentage?

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by bell , in category: Stocks and Equities , a year ago

What is a stock's dividend safety percentage?

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1 answer

by garret_hahn , 10 months ago

@bell 

A stock's dividend safety percentage is a measure that indicates the likelihood of a company being able to maintain or increase its dividend payments in the future. It is typically calculated by comparing the company's earnings per share (EPS) to its dividend per share (DPS).


The dividend safety percentage is calculated by dividing the EPS by the DPS and multiplying by 100. This percentage indicates the portion of earnings that a company is using to pay dividends, and a higher percentage represents a safer dividend payment.


For example, if a company has an EPS of $2 and a DPS of $1, then the dividend safety percentage would be 200% ($2 divided by $1 and multiplied by 100). This suggests that the company is using only 50% of its earnings to pay dividends, indicating a higher level of safety.


Investors often pay attention to the dividend safety percentage to assess the sustainability of a company's dividends. A high percentage indicates a greater ability to maintain dividend payments, while a low percentage may suggest that the company could struggle to sustain its dividend in the long term.