dividend cover: meaning, definition, pronunciation and examples
C1+Formal; Technical
Quick answer
What does “dividend cover” mean?
A financial ratio that measures the number of times a company could pay its current annual dividend from its current net profits.
Audio
Pronunciation
Definition
Meaning and Definition
A financial ratio that measures the number of times a company could pay its current annual dividend from its current net profits.
A key indicator of dividend safety and sustainability, used by investors to assess a company's ability to maintain or increase dividend payments without jeopardizing its financial health.
Dialectal Variation
British vs American Usage
Differences
No significant lexical difference; the term is identical. The calculation method (based on earnings per share definitions) may have subtle regional accounting variations.
Connotations
Identical technical connotations in both financial communities.
Frequency
Equally common and standard in UK and US financial contexts.
Grammar
How to Use “dividend cover” in a Sentence
[Company/It] has a dividend cover of [number].The dividend cover is [adjective].Analysts look at dividend cover to assess [noun].Vocabulary
Collocations
Examples
Examples of “dividend cover” in a Sentence
verb
British English
- [Not applicable as a verb]
American English
- [Not applicable as a verb]
adverb
British English
- [Not applicable as an adverb]
American English
- [Not applicable as an adverb]
adjective
British English
- [Not applicable as a standard adjective. Can be used attributively as a noun modifier: 'dividend-cover ratio']
American English
- [Not applicable as a standard adjective. Can be used attributively as a noun modifier: 'dividend cover analysis']
Usage
Meaning in Context
Business
Essential term in equity analysis, investment reports, and corporate finance discussions.
Academic
Used in finance, accounting, and economics papers focusing on corporate payout policy.
Everyday
Very rare; only used by informed retail investors discussing stocks.
Technical
Precise term with a standard formula: (Net Profit / Total Dividend Payout) or (Earnings Per Share / Dividend Per Share).
Vocabulary
Synonyms of “dividend cover”
Strong
Neutral
Weak
Vocabulary
Antonyms of “dividend cover”
Watch out
Common Mistakes When Using “dividend cover”
- Using it as a verb (e.g., 'The profits dividend cover the payment'). It's a noun phrase.
- Confusing it with 'dividend yield'. Yield is return (%) on price; cover is safety based on earnings.
- Saying 'dividend coverage' in formal UK finance contexts (more common in US).
FAQ
Frequently Asked Questions
Generally, a higher dividend cover is better as it indicates a larger safety cushion. However, an excessively high cover might suggest the company is overly conservative and not returning enough cash to shareholders.
The most common formula is: Dividend Cover = Earnings Per Share (EPS) / Dividend Per Share (DPS). It can also be calculated as Net Income / Total Dividend Payout.
They are inverses of each other. Dividend cover shows how many times dividends are covered by earnings. The payout ratio shows what percentage of earnings is paid out as dividends (Payout Ratio = 1 / Dividend Cover).
Yes. A dividend cover below 1 means the company is paying out more in dividends than its current earnings. This may be financed from retained profits (savings) or debt, which is unsustainable long-term.
A financial ratio that measures the number of times a company could pay its current annual dividend from its current net profits.
Dividend cover is usually formal; technical in register.
Dividend cover: in British English it is pronounced /ˈdɪvɪdɛnd ˌkʌvə/, and in American English it is pronounced /ˈdɪvɪˌdɛnd ˌkʌvɚ/. Tap the audio buttons above to hear it.
Phrases
Idioms & Phrases
- “[Not applicable for this technical term]”
Learning
Memory Aids
Mnemonic
Think of a 'safety cover' over a pool of profits. The 'dividend cover' is how many layers of that profit-pool you have to safely cover the dividend payment.
Conceptual Metaphor
SAFETY MARGIN IS A COVER/BUFFER (A 'cover' protects against a shortfall).
Practice
Quiz
What does a dividend cover ratio of 0.8 most likely imply?