What is the dividend coverage ratio?

It compares a company's earnings with its dividend: net income divided by dividends paid, or earnings per share divided by dividends per share. Coverage of 2x means earnings were twice the dividend.

What is a good dividend coverage ratio?

A common rule of thumb treats coverage of 2x or more as comfortable and below 1.5x as worth a closer look. Below 1x means the company paid more in dividends than it earned that year.

Is the dividend coverage ratio the same as the payout ratio?

They are two views of the same numbers: coverage is earnings divided by dividends, and the payout ratio is dividends divided by earnings. Coverage of 2x equals a 50% payout ratio.

Why check free cash flow coverage too?

Accounting earnings include non-cash charges such as depreciation, while dividends are paid in cash. Free cash flow, which is operating cash flow minus capital spending, shows whether the cash the business brought in covered the dividend payments.

Can this tell me if a dividend will be cut?

No. It shows how well past earnings and cash flow covered the dividend. A company can cut a dividend that looked well covered, or keep paying a poorly covered one for a while by borrowing or selling assets.

Why do REITs and BDCs look different?

REITs subtract large depreciation charges, and business development companies (BDCs) report portfolio purchases inside operating cash flow, so both can look uncovered when they are not. Their own reports use funds from operations (FFO) or net investment income instead.

Dividend coverage history

Dividend Coverage Ratio Checker

This free dividend coverage ratio checker shows how well a company's earnings and free cash flow covered its dividend in each fiscal year, from its reported financial statements. It shows past coverage, not a promise that the dividend will continue.

Free to use. No account or sign-up needed.

Stock

Dividend coverage

Dividends paid, net income and free cash flow by fiscal year appear here for the ticker you enter.

Coverage ratio formula

The dividend coverage ratio (DCR) formula divides earnings by dividends: net income divided by dividends paid to shareholders, or earnings per share divided by dividends per share. In the UK the same measure is called dividend cover, or the dividend cover ratio.

Coverage of 2x means earnings were twice the dividend, and coverage below 1x means the dividend was larger than earnings that year. What counts as a good dividend coverage ratio depends on the business: utilities and REITs usually run lower than other companies.

Cash flow coverage

Free cash flow (FCF) is operating cash flow minus capital spending, the cash a business has left after paying to keep itself running. Cash coverage divides free cash flow by dividends paid. The free cash flow payout ratio, also called the FCF payout ratio or cash payout ratio, turns it around: dividends paid divided by free cash flow.

Net income includes non-cash charges such as depreciation, so cash coverage can be stronger or weaker than earnings coverage in any one year. Some sites divide operating cash flow by dividends instead, a cash dividend coverage ratio that comes out higher because it leaves out capital spending. For banks, insurers, lenders and brokers, operating cash flow moves with loans, deposits and trading, so the checker hides free cash flow for them.

A worked example

Say a company paid $2.00B in dividends in one fiscal year, earned $3.00B of net income and brought in $2.50B of free cash flow. The dividend was 66.67% of net income, a coverage ratio of 1.50x, and 80.00% of free cash flow, a cash coverage of 1.25x.

The next year a one-time charge cut net income to $1.60B, while free cash flow held at $2.40B and the dividend rose to $2.10B. The payout ratio jumped to 131.25% and earnings coverage fell to 0.76x, but free cash flow still covered the dividend 1.14x.

A weaker year like that is a reason to read the statements closely. A one-time charge lowers earnings without touching cash, which is why the checker shows both measures for every year.

Coverage vs payout

Coverage and the payout ratio divide the same two numbers the other way around. Coverage of 2x equals a 50% payout ratio, and coverage of 1.25x equals an 80% payout ratio.

To work out one payout ratio from your own numbers, use the dividend payout ratio calculator.

Reading the trend

One fiscal year can mislead, so read the trend across all of them. These patterns are reasons to look closer at a company, and none of them forecasts a dividend cut:

Coverage that falls year after year, even while it stays above 1x.
Coverage under 1x for more than one year in a row.
Free cash flow that stays below the dividend while net income looks fine.
Debt that rises along with the dividend.
A high dividend yield that comes from a falling share price, often called a yield trap or a dividend trap.

Dividend coverage ratio FAQ

What is the dividend coverage ratio?: It compares a company's earnings with its dividend: net income divided by dividends paid, or earnings per share divided by dividends per share. Coverage of 2x means earnings were twice the dividend.
What is a good dividend coverage ratio?: A common rule of thumb treats coverage of 2x or more as comfortable and below 1.5x as worth a closer look. Below 1x means the company paid more in dividends than it earned that year.
Is the dividend coverage ratio the same as the payout ratio?: They are two views of the same numbers: coverage is earnings divided by dividends, and the payout ratio is dividends divided by earnings. Coverage of 2x equals a 50% payout ratio.
Why check free cash flow coverage too?: Accounting earnings include non-cash charges such as depreciation, while dividends are paid in cash. Free cash flow, which is operating cash flow minus capital spending, shows whether the cash the business brought in covered the dividend payments.
Can this tell me if a dividend will be cut?: No. It shows how well past earnings and cash flow covered the dividend. A company can cut a dividend that looked well covered, or keep paying a poorly covered one for a while by borrowing or selling assets.
Why do REITs and BDCs look different?: REITs subtract large depreciation charges, and business development companies (BDCs) report portfolio purchases inside operating cash flow, so both can look uncovered when they are not. Their own reports use funds from operations (FFO) or net investment income instead.

Track the dividends you own and screen for more dividend stocks with a free GNG account.

This tool shows past results from company financial statements. It is not investment advice and does not predict future dividends. A company can cut or suspend its dividend at any time, even after years of payouts that were well covered by earnings and cash flow. Read our disclosures.