preferred dividend coverage

Preferred dividend coverage

Net income after interest and taxes (before common stock dividends) divided by preferred stock dividends.

Preferred Dividend Coverage Ratio

A measure of a publicly-traded company's ability to pay dividends to preferred stockholders. It is calculated by taking the company's net income and dividing it by the total preferred dividends it must pay. A ratio over 1 indicates that the company is able to make dividend payments, while a ratio below 1 indicates that it cannot. The preferred dividend coverage ratio is particularly important because dividends to preferred stockholders are set and guaranteed. Failure to pay them can be highly detrimental to the company because preferred stockholders, under some circumstances, can force its liquidation to receive back dividends.

preferred dividend coverage

The measure of a firm's ability to meet its dividend obligations on preferred stock. The greater the coverage the less the chance that management will pass a dividend. This ratio is calculated by dividing earnings before taxes and fixed charges by fixed charges plus preferred dividends (divided by one minus the firm's tax rate).
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