Dividend Cover

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Definition

The ratio of a company's earnings to dividends being paid. For example, if a company has a net income of $10M and pays $1M in common dividends, the coverage ratio will be 10.

This ratio helps an investor know what proportion of earnings are being paid out as a dividend. With a stable dividend, a decreasing ratio could suggest that maintaining the current level of dividend could become more challenging in the future. Conversely, again with a stable dividend, an increasing ratio could support a thesis about the financial strengths of the company or could support the fact that the firm could increase its dividend in the future.

Formula

Net Income (TTM) / Common Dividends (TTM)

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