Are your dividends safe?
Tim Bennett Apr 08, 2011
Tim Bennett explains the 'dividend cover ratio' - a crucial ratio for anyone investing in income-generating stocks. See also:
What is a dividend yield?
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A dividend is the part of a company's profits that are distributed to shareholders. They are usually given as cash (cash dividend), but can also be given in the forms of stock (stock dividend). High-growth companies seldom offer dividends, because they are more concerned with reinvesting profits in the business. This is so they can maintain above average growth. However, as companies mature they will often offer dividends to shareholders to sustain investors' interest by means other than mere capital appreciation. Dividend payments also send out a message that the company is financially stable and on the right track as dividends are a good sign of the company's financial health.
• Entry from MoneyWeek's Financial glossary.