Connect dividend per share, yield and cover
Compare an investor's dividend amount and yield with the profit available to support the distribution.
Exam scope and assessment notes
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. Use the ratio formulae in the syllabus appendix exactly; Cambridge states these are the only formulae accepted. Use year-end balances where appropriate unless the question specifies averages, and round to the requested number of decimal places. Practice is self-checked, not an official Cambridge grade. Full timed Papers 1–4 and human subject-teacher review remain outstanding.
Before you begin
- Use the AS Topic 1.6 ratio, financial-statement and stakeholder skills. These lessons add only the A Level ratios and interpretation required by Topic 3.5.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
DPS is $0.12 and share price is $3.00. What is yield?
What you will learn
- Calculate DPS, dividend yield and dividend cover from one case
- Distinguish currency-per-share, yield ratio and times measures
- Evaluate proposal sustainability with relevant evidence
Keep the three dividend ratios distinct
DPS = annual ordinary dividend ÷ issued shares, where annual ordinary dividend is interim paid + final proposed. Dividend yield = DPS ÷ market price per share. Dividend cover (times) = profit available for ordinary dividend ÷ annual ordinary dividend.
DPS is currency per share; the yield quotient is a ratio (for example, 0.04 is 4%); cover is a times measure. Do not use one as a substitute for another. A proposed final dividend remains proposed in the data.
Interpret the distribution from multiple viewpoints
Investors may value current income, dividend stability or reinvestment. A higher DPS or yield can be attractive, but a falling share price can raise yield and a low cover can signal less profit buffer.
Assess profit, cash flow, debt, investment needs and approval status. The ratios do not establish cash affordability or guarantee future dividends; explain the trade-off for the stakeholder concerned.
Pause and explain
Which ratio checks profit available against the annual ordinary distribution?
Worked example
Interim paid is $18,000, final proposed is $42,000, issued shares are 600,000, market price is $2.50 and profit available is $150,000. Calculate DPS, yield and cover.
Show the worked solution
- Annual ordinary dividend = $60,000; DPS = $60,000 ÷ 600,000 = $0.10.
- Yield = $0.10 ÷ $2.50 = 0.04, equivalent to 4%.
- Cover = $150,000 ÷ $60,000 = 2.5 times.
Answer DPS is $0.10 per share, yield ratio 0.04 (4%) and cover 2.5 times.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
Annual ordinary dividend is $80,000, issued shares are 400,000, share price is $4 and profit available is $200,000. Calculate all three dividend ratios.
Give me a hint
Calculate DPS first because yield uses it.
Compare my reasoning
- DPS = $80,000 ÷ 400,000 = $0.20.
- Yield = $0.20 ÷ $4.00 = 0.05, equivalent to 5%.
- Cover = $200,000 ÷ $80,000 = 2.5 times.
DPS is $0.20, yield ratio 0.05 (5%) and cover 2.5 times.
Look for these in your work
- Calculate DPS in currency per share.
- Calculate yield as a ratio and equivalent percentage.
- Calculate cover in times.
A company proposes a final dividend that raises annual dividend from $45,000 to $60,000. Profit available is $150,000. Calculate cover before and after the proposal.
Give me a hint
Use the old and proposed annual dividends as separate denominators.
Compare my reasoning
- Before: $150,000 ÷ $45,000 = 3.33 times.
- After: $150,000 ÷ $60,000 = 2.5 times.
- The proposal lowers the profit buffer from 3.33 to 2.5 times; consider cash and investment plans as well.
Cover falls from 3.33 to 2.5 times after the proposal.
Look for these in your work
- Calculate cover before the proposal.
- Calculate cover after it.
- Explain the smaller profit buffer and the limits of the measure.
A shareholder wants maximum current yield; a director wants funds retained for a new factory. Use DPS, yield and cover to frame the decision without choosing automatically.
Give me a hint
State what each stakeholder values, then compare payout with profit and investment needs.
Compare my reasoning
- For the shareholder, calculate the proposed DPS and yield using the relevant price and dividend.
- For dividend sustainability, check cover and cash availability; for the director, quantify the factory's funding and expected return.
- Compare the income benefit with the opportunity cost and financing risk, and recommend a decision supported by evidence.
Explain the shareholder's income and yield, the profit and cash buffer, and the factory opportunity cost; a balanced recommendation depends on the expected return and financing capacity.
Look for these in your work
- Calculate the shareholder measures correctly.
- Assess cover, cash and investment needs.
- Justify the trade-off for both stakeholders.
Common mistakes
- Confusing the percentage yield with times cover
- Treating the final proposed dividend as already paid
- Ignoring cash and investment needs when interpreting cover
What can you explain now?
Which result is expressed in times?
Compare with the explanation
Dividend cover
Cover divides profit available by annual ordinary dividend and is reported in times.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
Explain the difference between DPS, dividend yield and dividend cover.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.