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Q&A : Fundamental Analysis EPS Cannot Cover Dividend

by Dave
(Pa )

If the EPS of a company cannot cover the annual dividend, how can I determine if the company can cover the dividend from their cash flow? Where do I look on the companies balance sheet or income statement to determine if the company can cover their annual dividend, what amount should they have?

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Jan 22, 2018
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Not Sure, But A Company That Can't Cover Dividend Is A Red Flag
by: Stephen

Hi, Dave

Thanks for the fundamental analysis question.

I'm not an expert in the FA arena. So if I tried to answer this question I would be misleading you.

But as far as I know, if a company can't even cover their dividend from their earnings, then it raises a red flag problem.

There could be a number of reasons, slowing business, competition or management problems.

As far as I know, the best companies are the ones that grow their EPS substantially y-o-y, or quarterly. Sometimes they don't even issue dividends. If they do, they will keep the dividend very small.

Hope this helps.

Stephen

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