A:

Yes, it can. In fact, many well-known Fortune 500 companies have paid dividends in years where they posted negative earnings per share!
When it comes to declaring and paying dividends, current earnings per share has nothing directly to do with whether a company is able to pay a dividend. Keep in mind that a company with a lower earnings per share (EPS) than its dividend in a current year may be coming off of a string of more profitable (high EPS) years, from which it has set aside cash to pay future dividends.

The only real numbers that matter in paying dividends are "retained earnings" and available cash. From a management point of view, retaining some of the shareholders' earnings quarterly or yearly makes a lot of sense. Having a large retained earnings balance allows a company to pay consistent dividends with no negative surprises. In addition, the company is able to keep cash on hand to reinvest in its future expansion.

On a related note, many investors do not realize that a company's earnings per share is calculated after the higher yielding preferred stock dividends have been paid. In other words, a large portion of a company's dividend costs already may be reflected in the EPS number that most investors look at.

For more on this topic, read Stocks Basics: Different Types of Stock and Types of EPS.

This question was answered by Ken Clark.

RELATED FAQS
  1. Do penny stocks pay dividends?

    Because of the small market capitalization and revenues typical of most penny stocks, there are very few that offer dividends. ... Read Full Answer >>
  2. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  3. How do dividend distributions affect additional paid in capital?

    Whether a dividend distribution has any effect on additional paid-in capital depends solely on what type of dividend is issued: ... Read Full Answer >>
  4. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  5. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  6. When does the holding period on a stock dividend start?

    The holding period on a stock dividend typically begins the day after it is purchased. Understanding the holding period is ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: iShares Morningstar Small-Cap Value

    Find out about the Shares Morningstar Small-Cap Value ETF, and learn detailed information about this exchange-traded fund that focuses on small-cap equities.
  2. Mutual Funds & ETFs

    ETF Analysis: WisdomTree SmallCap Earnings

    Discover the WisdomTree Small Cap Earnings ETF, a fund with a special focus on small-cap and micro-cap stocks with positive earnings.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares US Regional Banks

    Obtain information and analysis of the iShares US Regional Banks ETF for investors seeking particular exposure to regional bank stocks.
  4. Technical Indicators

    Key Financial Ratios to Analyze the Mining Industry

    Discover some the most important financial ratios used by investors and analysts to evaluate companies in the metals and mining industry.
  5. Technical Indicators

    Key Financial Ratios to Analyze Retail Banks

    Learn about key financial metrics that investors use to evaluate retail banks, and how the industry is fundamentally different from most other industries.
  6. Technical Indicators

    Key Financial Ratios to Analyze Airline Companies

    Examine some of the most important financial ratios and performance metrics investors use to evaluate companies in the airline industry.
  7. Stock Analysis

    The 5 Biggest Canadian Oil Companies

    Obtain information about some of the largest and most successful major integrated oil corporations that are headquartered in Canada.
  8. Technical Indicators

    Key Financial Ratios to Analyze Tech Companies

    Understand the technology industry and the companies that operate in it. Learn about the key financial ratios used to analyze tech companies.
  9. Stock Analysis

    3 Reasons to Continue to Own Monster Beverage

    Learn more about the Monster Beverage Corporation and some of the primary reasons why investors and market analysts like the stock.
  10. Technical Indicators

    Key Financial Ratios to Analyze the Hospitality Industry

    Understand the hospitality industry and the types of companies that operate within it. Learn about key financial ratios used to analyze the industry.
RELATED TERMS
  1. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Dividend Yield

    A financial ratio that shows how much a company pays out in dividends ...
  4. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  5. Security

    A financial instrument that represents an ownership position ...
  6. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating ...

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!