Dividend Cover

The Dividend Cover displays the amount of times Earnings per Share exceeds Dividends per Share. Generally, you want Earnings per Share to be triple of Dividends per Share. The higher this number is the safer for the company. A higher Dividend Cover also means the firm is focusing more on retained earnings and reinvestment than it is on paying dividends.

It can also mean the dividends are too low for an investor seeking income through dividends and the company can afford to pay more. If the number for dividend cover is equal to 1, all earnings are being used to pay dividends, which is generally unwise. If the number is less than 1, the firm is using previous years of retained earnings to pay dividends. This means the firm is writing down its retained earnings in favor of paying dividends to you, which is not advisable. A firm generally should pay fewer dividends if the dividend cover is less than 2, or would be, and should stop paying at all as the number approaches 1.