What is dividend coverage ratio?

Dividends are an essential part of shareholder returns, and the Dividend Coverage Ratio plays a key role in assessing a company's ability to sustain these payouts. In this video, we dive into what the dividend coverage ratio is, how it's calculated, and why it's a critical measure for both shareholders and analysts. We explain how a high ratio indicates strong financial health and dividend sustainability and use real-world examples to demonstrate its practical application. We also cover other related ratios, such as the Dividend Payout Ratio and Preferred Dividend Coverage Ratio, to provide a holistic view of a company's dividend policy. Lastly, we explore the limitations of the dividend coverage ratio and why it should be analyzed in conjunction with other financial metrics for a complete assessment of dividend stability.

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