SteadySharesSteadyShares
Glossary
Income

Dividend cover

How many times over the company's earnings could pay the dividend.

The inverse of the payout ratio. Cover of 2 means earnings are twice the dividend, which is comfortable. Cover below 1 means the dividend is not being paid out of profits at all.

The more rigorous version divides free cash flow by the dividend, since cash is what actually gets paid to you.

The formula
Dividend cover = Earnings per share ÷ Dividend per share
Figure

The divergence that precedes most disasters

Y1Y2Y3Y4Y5Reported profitOperating cash

Reported profit climbing while the cash it supposedly generated goes nowhere. Either customers are not paying, or the sales were never really made.

Why it matters

It is the safety margin on your income.

The mistake everyone makes

Accepting cover based on earnings when free cash flow does not support the payment.

Related terms

Payout ratio
The share of profit handed out as dividends.
Dividend yield
Annual dividend as a percentage of the share price.
Free cash flow
The cash actually left over after the business has paid to keep itself alive.

See Dividend cover on a real company

SteadyShares pulls this straight from the filings for 1,100+ companies, alongside moat scores, DCF fair value and peer comparison. Free to look around.

Open SteadyShares