Dividend cover is a
rough indication of how likely
it is that a
company can continue to pay
dividends
at the current rate. It is calculated by dividing the
total
earnings of the company by the total
ordinary
dividend payout.
For example, suppose that company XYZ has
total earnings
of $150000000 for the year, and paid out $20000000 in
dividends:
DC = TE / DIV PAYOUT
= $150000000 / $20000000
= 7.5
A higher dividend cover is better,
ceteris paribus.