What is dividend cover?

Dividend cover provides investors with a measure of a companies ability to pay it's dividend. The higher the cover, the safer is the dividend in theory.

It is a straightforward formula.

Earnings per share divided by dividends per share.

Alternatively it is known as the payout ratio.

In the Investor tools products, the dividend cover is the 1 year forward dividend cover.

By this it is meant the forecast Earnings per share for the current financial year divided by the Dividend forecast for the current financial year.

Dividend cover can also be measured historically by dividing the prevoius years earnings by the previous years dividend.

In recent years there has been a general move to aim for a dividend cover of around 2x. This is regarded as an efficient use of capital.