A company's dividend for this year will cost €1.5m. Its profits before taxes are €3.8m and after taxes €3.3m. What is the company's current dividend cover?

• A. A 1.5
• B. B 2.2
• C. C 2.53
• D. D 3.3

Answer: (B)

Dividend cover shows how many times the current dividend can be paid from after-tax profits. It’s calculated by dividing profits after tax by the dividend.

Here, after-tax profits are €3.3m and the dividend is €1.5m. 3.3 ÷ 1.5 = 2.2. So the dividend can be covered 2.2 times by earnings. This uses after-tax earnings because taxes reduce distributable profits; the pre-tax figure isn’t used in this calculation. A cover around 2.2 suggests the dividend is well supported by earnings, with some cushion for retained earnings or growth.