Bob Davies •
August 28, 2023
Dividend cover calculator
Dividend cover is a key metrics for investors who want to make smart choices about stocks that pay dividends. Dividend cover looks at the link between earnings and dividends to figure out how long a company can keep paying dividends. In this piece, we'll explain what dividend cover is and give you a dividend cover calculator to help you figure out how your investments are doing.
Understanding dividend cover
Dividend cover, also known as the dividend coverage ratio, assesses the extent to which a company's earnings can cover its dividend payments. It's an indicator of a company's ability to maintain its dividend distributions even during periods of fluctuating earnings.
The dividend cover ratio is calculated by dividing a company's earnings per share (EPS) by its dividends per share (DPS). The formula can be expressed as follows:
Dividend Cover Ratio = Earnings per Share (EPS) / Dividends per Share (DPS)
As we can see, it is fairly easy to do the calculation but below you will find a handy calculator that will do everything for you!
Calculating dividend cover
Find out the earning per share (EPS) and dividends per share (DPS) of your stock. Then, simply input these values into the form below to utilise our user-friendly Calculator. Click the button below and the result will be displayed.
Dividend Cover Ratio: x
Interpreting the results
Once you've utilised the calculator, you'll obtain a dividend cover ratio. Understanding the results is crucial:
- Dividend Cover Below 1.0: Investors should be concerned if the dividend cover ratio is less than 1.0. This situation suggests that the business is distributing more dividends than it is making in earnings during that time. Such an occurrence would necessitate the use of the company's cash reserves, asset sales, or borrowing to pay dividend commitments. This strategy frequently cannot be sustained over the long term.
- Dividend Cover Ratio of 1.5 or Less: A dividend cover ratio of 1.5 or Less could be deemed unfavourable. The corporation may have less financial flexibility if profits drop in a certain year, according to this ratio. The company will then have to decide whether to cut dividends, limit reinvestments, or take on more debt in order to sustain payouts.
- 2.0 or Greater Dividend Cover Ratio: A dividend cover ratio of 2.0 or greater is generally regarded as desirable. According to this scenario, the company's profits are twice what it is dispersing in dividends. Companies with this level of dividend cover are able to invest in strategies for business expansion and have a cushion to deal with difficult market conditions without jeopardising dividend stability.
I hope that this user-friendly dividend cover calculator proves to be an invaluable tool, empowering you to project dividend potential, align your investments with financial goals, and make informed decisions.
Whether you seek portfolio growth, stable income, or financial optimisation, our calculator simplifies the process for you. You can learn more on this topic by reading our more in-depth articles: What is dividend cover? and How to calculate dividend cover?