Dividend Coverage Ratio / Retained Earnings

Dividend Coverage Ratio / Retained Earnings (DCR/RE) compares annualized earnings plus recorded retained earnings with annualized included dividends. It shows how a finite retained earnings balance changes the coverage picture. It does not mean the company has that amount of cash ready to pay dividends.

How the ratio is calculated

DCR/RE = (annualized earnings per share + recorded retained earnings per share) ÷ annualized included dividends per share. Use comparable figures from the same reporting date and identify the earnings measure and period. Included dividends are regular payments and supplemental payments made regularly; irregular special dividends are excluded. Do not infer the underlying earnings calculation from an unlabeled figure.

A simple example

Suppose annualized earnings are $0.99 per share, recorded retained earnings are $0.36 per share, and included annual dividends are $1.00 per share. Earnings-only coverage is $0.99 ÷ $1.00 = 99%. Adding retained earnings gives ($0.99 + $0.36) ÷ $1.00 = 135% DCR/RE. The retained earnings component is $0.36 per share, not $1.35. It is enough on paper to bridge the current $0.01 annual earnings gap, assuming the recorded balance is usable, but it is not a recurring source of earnings.

What to check

Read DCR/RE alongside the ordinary Dividend Coverage Ratio. Check the source, date, and basis of the retained earnings figure, and whether it reconciles with the matching earnings and dividend figures. Retained earnings are an accounting balance, not proof of available cash. A high combined ratio cannot by itself establish that future dividends will be paid. Refresh the calculation when earnings, the dividend, or the recorded retained balance changes.

This entry is for education and information, not individualized investment, tax, or legal advice.