What is a dividend cover?

Dividend coverage is a type of evaluation or measurement that provides information about the company's ability to pay a certain level of dividends. The formula basically helps to prove how many times the company could pay a certain dividend of profits generated in the specified period. The basic formula includes the division of the dividend share, which makes it easier to determine whether the company could easily pay the dividend amount of two, three or more times of profits.

One of the reasons why the dividend coverage evaluation is important is that the calculation can help indicate the stability of the company. This stability is not necessarily assessed according to how many times the dividends could be paid out of profits for a given period, but the fact that the ratio remains more or less constant from one period to another. For example, a company that consistently generates earnings that would allow compans to pay dividends twice over the investors would be considered as stable as withPolyness that was able to pay dividends three times, provided both companies have been able to do so consistently from the period to the period.

For investors looking for investments that provide a relatively consistent return in the form of dividends, it would be important to review the history of dividends in society. This would suggest that the company is able to produce revenue that is likely to produce dividends consistently and often in the same general amount. If society shows the history of more volatile dividends, it may experience relatively large deviations from one period to another without a repetitive pattern, the investor may consider this investment inappropriate if it does not like the idea of ​​another risk.

It is important that dividendaches for even the most stable companies can move slightly from time to time. For this reason, investors usually look at activity during a fewThe period and allow deviations that seem to be associated with a particular reason, such as seasonality. If the dividend coverage is accustomed to the best effect, companies can help assess their own progress towards the set goals and identify potential problems that may endanger the long -term profitability of business. At the same time, investors can use this tool as a means of identifying investments that are suitable for their own financial plans.

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