What happens when you increase your dividend cover?

Answer 1

Dividend cover shows how many times over the profits could have paid the dividend.

dividend cover = EPS ÷ DPS

This indicates the ability of the firm to maintain the level of dividend paid out.

The higher the cover the better the ability to maintain dividends if profits drop.

This needs to be looked at in the context of how stable a company's earnings are: a low level of dividend cover might be acceptable in a company with very stable profits, but the same level of cover at company with volatile profits would indicate that dividends are at risk.

Hope that helps!