Dividend coverage (Div coverage)
How many times over free cash flow covers the common dividend paid.
A dividend covered less than once is being funded from somewhere else, and that cannot continue forever.
How it is computed here
Free cash flow / common dividends paid
Measured over the latest complete fiscal year, as filed. Filed under quality. Higher is the stronger reading, other things equal.
The readings, and where the lines come from
| Range | Reading |
|---|---|
| below 1.00 | Not covered by free cash flow |
| 1.00 to 1.50 | Covered with little room |
| 1.50 to 3.00 | Comfortably covered |
| 3.00 and above | Heavily covered |
The 1.0 line is definitional: below it the dividend is not funded by the year's free cash flow.
When it misleads
- Withheld, never shown as zero, when no dividend is paid or the free cash flow line is not on file.
- Common dividends only. Preferred dividends are paid first and are not deducted.
- One weak investment year can push coverage below one without the dividend being at risk.
- Buybacks are not counted, so total capital returned can exceed what this suggests.
Questions
How is dividend coverage calculated?
Free cash flow / common dividends paid. Measured over the latest complete fiscal year, as filed.
What does dividend coverage tell a value investor?
A dividend covered less than once is being funded from somewhere else, and that cannot continue forever.
When does dividend coverage mislead?
Withheld, never shown as zero, when no dividend is paid or the free cash flow line is not on file. Common dividends only. Preferred dividends are paid first and are not deducted. One weak investment year can push coverage below one without the dividend being at risk. Buybacks are not counted, so total capital returned can exceed what this suggests.