IN PLAIN ENGLISH
Checks whether the dividend is paid out of real cash coming in from the business, not just accounting profit. Above 1 means trading brought in more cash than the company handed to shareholders; below 1 means it topped the dividend up from savings, borrowing or selling things.
FULL DEFINITION
How many times over a company's operating cash flow covers the cash dividends it paid, in its latest financial year.
EXAMPLE
Operating cash flow of £300m and £100m paid in dividends gives 3.0: the business brought in three times the cash it paid out.
HOW IT'S CALCULATED
Worked out by the app from the company's latest annual report: Cash Flow Coverage = operating cash flow ÷ cash dividends paid, both from the market data provider's annual cash flow statement. Operating cash flow is before capital expenditure, so this looks healthier than coverage by free cash flow would. Shows N/A when operating cash flow is zero or negative or no dividend was paid. Shown as a ratio, so 2.0 means operating cash flow was twice the dividends paid.
Educational content only. It is not personal financial advice.