As most DIY Income Investors will be aware, 'dividend cover' is usually given as the ratio of the company's net profit to the dividend payout - in other words, how many times the company could pay out the dividend from profits. Ideally you would like to see dividends covered at least twice, or at least one-and-a-half times.
Usually companies like to be consistent with dividends - maintaining them or increasing them. However, sometimes the dividend just gets out of whack with the level of profit when times are hard and occasionally drastic action is needed in order to demonstrate responsible financial management. The management know that cutting the dividend will send a powerful message to the market - but this message is mixed: both negative and positive, The usual response is a fall in share price, which means the dreaded 'double whammy' for DIY Income Investors (loss of dividend and fall in share price).
|Source: AJ Bell YouInvest
I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.