Preferred Dividend
Dividends represents cash payments to shareholders. Like, if you own 100 shares of Manny’s Muffin Mansion Inc., and they declare a $0.50 per share dividend, you’ll get a check for $50.
Preferred dividends don’t go to all shareholders, just to holders of the company's preferred stock. (Common stock holders get common stock dividends.) So the preferred dividends don't go to the dirty hoople heads who hold the common shares, and who breathe through their mouths and likely drink milk right from the container, always letting a little stream dribble down their disgusting, inverted chins. No, these dividends go to the fancy, first class-flying, “Yes, I’m on the list to go backstage at this Beyoncé concert” holders of preferred stock.
In practical terms, it means that, if the company runs out of cash to pay its dividends, the preferred stockholders get paid first. Just like how the rich folks on the Titanic got first dibs on the lifeboats.
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Finance: What is Dividend Coverage/the D...7 Views
finance a la shmoop what is dividend coverage and what is the dividend payout
ratio? whatever.com has earnings big earnings a hundred million dollars worth
of earnings this year from sales of a whole lot of whatever's the board green [People working in a factory]
lights a dividend payment of 40 million bucks that is the company will pay 10
million dollars to its common shareholders of record four times in
this next year the payout is 40 million because well
you know it's paid out and yeah clever titling know is never a thing on Wall
Street and the payout ratio is 40 over a hundred that hundred million of earnings [Payout ratio calculation appears]
or forty percent well why does the payout ratio even matter?
well companies hate having to cut their dividends and they love raising them if
the former well stock prices usually crash if the latter well they usually go
up and companies love it when their stock prices go up duh so what would [Whatever.com share price rises]
happen if whatever dot-com stumbled in its earnings tumbled and then
shareholders mumbled that the earnings payout ratio had crumbled that is... okay
stop with the rhyming bad timing okay now we're stopping and yeah that is what
if the earnings of whatever.com went down next year to only 50 million
remember they were a hundred million now they're only 50....hmm
problem because now the payout ratio is 80 percent 40 over 50 yeah very
difficult situation the company thought it would have tons of earnings to cover
its dividend at the forty million dollar level more or less forever
but clearly it did not so now what well if earnings recover and go back to a [Man discussing whatever.com's earnings]
hundred million dollars on their way to the 300 million they projected well,
then life is grand no sweat no heavy decisions to be made
but what if earnings fall further to be only thirty million the following year
well then whatever dot-com has to either borrow money or deplete its cash
reserves just to cover its dividend in which case the payout ratio would then
be over a hundred percent meaning that the earnings were 30 million and the [Earnings appear]
dividend was to be forty well then the payout ratio would be 40 over 30
133% ouch can't do that for very long without going bankrupt so payout ratios [Wheel spins and lands on bankrupt]
matter because they give a sense for the safety or certainty that that dividend
will continue at its present rate if the ratio is low well odds are good the
company could certainly afford to raise the dividend over time or at least not
cut it yeah for a very long time ideally and if the ratio is high well your [Dividend cut with scissors]
bottom line may soon be bottoming out back-end load there if i ever saw it...
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