Preferred Dividend Coverage Ratio

DEFINITION of 'Preferred Dividend Coverage Ratio'

A coverage ratio that measures a company's ability to pay off its required preferred dividend payments. A healthy company will have a high coverage ratio, indicating that it has little difficulty in paying off its preferred dividend requirements.

Formula:

Preferred Dividend Coverage Ratio



BREAKING DOWN 'Preferred Dividend Coverage Ratio'

Not only does this ratio give investors an idea of a company's ability to pay off its preferred dividend requirements, but it also gives common shareholders an idea of how likely they are to be paid dividends. If the company has a hard time covering its preferred dividend requirements, common shareholders are less likely to receive a dividend payment on their holdings.

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