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Dividend Cover is actually the inverse of the Dividend Payout Ratio. It is calculated by comparing the Earnings Per Share (EPS) and the actual dividend paid out per share.

Formula:

DC = EPS / Dividend Paid

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13y ago

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What is the relevance of dividend cover if dividends are paid out of distributable profits?

Because dividend cover represents the amount of times by which dividends can be paid by profits. i.e. the company's ability to pay it's dividends. The higher the dividend cover the greater the ability of the company to pay dividends out of it's distributable profits. Dividends according to companies act legislation can only be paid out of distributable profits hence the relevance of dividend cover represents the companies ability to pay their dividends.


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