An important question for a shareholder relying on dividends is whether a firm will be able to afford to carry on paying them in the future.
One measure of this is dividend cover. This is the number of times the profit available to pay a dividend actually covers the dividend paid. So for example if profit after tax is £100m and a firm’s annual dividend is £10m the dividend is covered 10 times (£100m/£10m). The higher this number the more comfort an investor has about dividend affordability.