Dividend Yield & Coverage Ratio Calculator
Category: Fundamental & Economic ToolsEvaluate dividend stocks by calculating key metrics such as dividend yield, payout ratio, and coverage ratio to make informed investment decisions
Stock Information
Dividend Information
Earnings Information
Dividend Metrics Results
Dividend Yield Comparison
Coverage & Payout Ratios
Dividend Growth Projection
Dividend Income Projection
| Year | Annual Dividend | Yield-on-Cost | Annual Income | Cumulative Income |
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Dividend Investment Analysis
Dividend Yield Assessment
The current yield of 4.00% is above average compared to the broader market. This stock offers solid income potential for dividend-focused investors.
Dividend Safety Analysis
With a payout ratio of 50.0% and coverage ratio of 2.00x, this dividend appears to have strong safety. The company has sufficient earnings buffer to maintain payments even if earnings decline temporarily.
Growth Potential
Based on the projected dividend growth rate of 5.0% and earnings growth of 6.0%, this dividend has good potential for future increases. The dividend could outpace inflation over the long term.
Overall Dividend Quality
This stock demonstrates above-average dividend quality based on yield, safety, and growth potential. It may be suitable for income-focused investors looking for reliable income with moderate growth.
Understanding Dividend Metrics
Dividend metrics help investors evaluate the income potential, sustainability, and quality of a company's dividend payments. These measures are essential for income-focused investors to make informed decisions.
Key Dividend Metrics Explained
- Dividend Yield: Annual dividend divided by current stock price, showing income return on investment
- Payout Ratio: Percentage of earnings paid as dividends, indicating dividend sustainability
- Coverage Ratio: How many times earnings cover dividend payments (inverse of payout ratio)
- FCF Coverage Ratio: How well free cash flow covers dividend payments
- Real Yield: Dividend yield adjusted for inflation, showing true purchasing power
Interpreting Results
- Payout Ratio < 50%: Very safe dividend with room for growth
- Payout Ratio 50-75%: Reasonable sustainability with limited growth potential
- Payout Ratio > 75%: Limited safety margin, possible dividend risk
- Coverage Ratio > 2.0: Strong dividend safety
- FCF Coverage > Earnings Coverage: Indicates high-quality earnings backing dividends
Key Formulas
Dividend Investment Strategies
Income Investing
Focus on high current yield (4%+) with sustainable payout ratios to generate regular income for living expenses or reinvestment.
Dividend Growth
Prioritize companies with moderate yields (2-4%) but strong growth rates (8%+) and low payout ratios (under 50%) for long-term compounding.
Dividend Aristocrats
Invest in companies with 25+ years of consecutive dividend increases for proven reliability and management commitment to shareholders.
Dividend Reinvestment
Reinvest dividends to purchase additional shares, creating a powerful compounding effect that accelerates wealth building over time.
Dividend Metrics in Focus: What Your Yield, Payout, and Coverage Numbers Really Say
Now that you've seen your dividend analysis, it's time to interpret the numbers and what they reveal about the stockās income potential, safety profile, and long-term viability. This isnāt just about chasing a big yieldāitās about knowing whether that income is likely to stick around and even grow.
Key Takeaways from Your Dividend Output
- Dividend Yield: 4.00% ā This places your stock comfortably above the market average (around 2ā3%), suggesting solid income potential for current buyers.
- Payout Ratio: 50.0% ā Right in the āsafe zone.ā A payout under 60% usually means the company isnāt stretching itself to pay dividends, leaving room for reinvestment or growth.
- Coverage Ratio: 2.00x ā Indicates that earnings more than double the dividend obligation. Thatās a good margin for safety.
- FCF Coverage: 2.50x ā Free cash flow covers the dividend with even more room. That suggests quality earnings are supporting these payouts, not accounting tricks or borrowed money.
- Real Yield: 1.50% ā After adjusting for inflation, your purchasing power isn't quite as strong. This is something to watch if you're relying on dividend income to keep up with living costs.
- Sustainable Growth Horizon: 20 years ā Based on your growth assumptions, this dividend could remain under the 75% payout threshold for two decades. Thatās a positive sign for long-term holders.
Signals to Watch in Your Dividend Metrics
The individual numbers matterābut itās the relationship between them that often tells the deeper story.
- Yield vs. Payout Ratio: A high yield is attractive, but if it comes with a high payout ratio, the risk of cuts increases. In your case, the high yield is supported by a moderate payout, which is a good combination.
- EPS Coverage vs. FCF Coverage: Free cash flow coverage higher than earnings coverage is typically a plus. It implies earnings quality and sustainability.
- Yield-on-Cost in Year 10: 6.52% ā If dividend growth plays out, youāre on track to earn a substantially higher yield on your original investment.
Risks to Keep in Mind
Even with strong coverage and a healthy payout ratio, no dividend is ever risk-free. Consider these potential issues:
- Inflation drag: Your real yield of 1.50% shows how quickly inflation eats into your returns. If inflation picks up and dividend growth lags, purchasing power suffers.
- Growth assumptions may not hold: Projected 5.0% dividend growth and 6.0% earnings growth are optimistic. A slowdown in either can shorten the 20-year sustainable window.
- Sector-specific risks: Yields above 4% often appear in sectors like telecom, utilities, or REITsāsectors vulnerable to regulation, interest rate changes, or capital intensity.
Next Moves for Dividend Investors
With metrics like these, youāre looking at a stock that appears to offer a good balance of income, safety, and growth. Still, every investor's goals differ. Here are some practical next steps:
- Compare across sectors: Use the charts to see how your stock stacks up against telecoms, REITs, and market averages. If it's outperforming without outsized risk, thatās a win.
- Track dividend history: Numbers are current snapshots. Go back and see how this company managed its dividend in past recessions or slowdowns.
- Reinvest or withdraw? If you donāt need the cash, reinvesting dividends can dramatically improve your long-term yield-on-cost. Check if the stock offers a dividend reinvestment plan (DRIP).
- Revisit inflation inputs: Tweak the inflation slider in the tool to see how your real yield adjusts under different economic conditions.
- Watch payout creep: Even great dividend stocks can lose their discipline. If the payout ratio climbs past 75% over time, it may be time to re-evaluate.
Next Steps with Your Dividend Yield Analysis
Dividend investing works best when you stay grounded in the numbers. Based on your output, this stock looks like a well-balanced candidate for a portfolio aiming at consistent income with the potential for future growth. That said, keep tracking those payout and coverage ratios as earnings evolveābecause no dividend story stays static forever.