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. Dividend

    A distribution of a portion of a company's earnings, decided ...
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    Any person, company or other institution that owns at least one ...
  3. Preferred Stock

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

    A financial benefit that is realized when the amount of revenue ...
  5. Coverage Ratio

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  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 ... Read Full Answer >>
  2. Is a company's paid in capital affected by the trading of its shares in the secondary ...

    The amount of paid-in capital a company has is not affected by the trading of its shares on the secondary market. Paid-in ... Read Full Answer >>
  3. How can the price of a stock change on the ex-dividend date?

    An investor looking for a dividend-paying stock has two important dates to consider when investing in a company. The first ... Read Full Answer >>
  4. Why is the value of capital stock important to public shareholders?

    The value of a company's capital stock is important to public shareholders, because a company's capital stock represents ... Read Full Answer >>
  5. How do changes in capital stock illustrate the overall health of a company?

    Changes in capital stock normally illustrate that the overall health of a company is strong, and that it is seeking to raise ... Read Full Answer >>
  6. How is the ex-dividend date for a dividend on a stock determined?

    The ex-dividend date is actually determined by the appropriate stock exchange, not by the company paying the dividend. The ... Read Full Answer >>
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