Preferred Dividend Coverage Ratio

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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



INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Shareholder

    Any person, company or other institution that owns at least one ...
  2. Preferred Stock

    A class of ownership in a corporation that has a higher claim ...
  3. Profit

    A financial benefit that is realized when the amount of revenue ...
  4. Dividend Policy

    The policy a company uses to decide how much it will pay out ...
  5. Coverage Ratio

    A measure of a company's ability to meet its financial obligations. ...
  6. Common Stock

    A security that represents ownership in a corporation. Holders ...
RELATED FAQS
  1. What is the difference between preferred stock and common stock?

    Preferred and common stocks are different in two key aspects. First, preferred stockholders have a greater claim to a company's ...
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