One measure of the safety of a preferred stock's dividend is the ratio of dividends to earnings before interest and taxes.

Question

One measure of the safety of a preferred stock's dividend is the ratio of dividends to earnings before interest and taxes.​

Quizplus · Accepted Answer

The ratio of dividends to earnings before interest and taxes is not a measure of the safety of a preferred stock's dividend. Rather, it is a measure of the dividend payout ratio, which is the proportion of earnings paid out as dividends. A lower dividend payout ratio may indicate a safer dividend, as it suggests the company has more earnings available to cover its dividend payments. However, other factors such as the company's financial strength, industry trends, and economic conditions also affect the safety of a preferred stock's dividend.

One Measure of the Safety of a Preferred Stock's Dividend