Can you count on Micro Focus International's dividend payment?

One of the quickest ways to kick the tires on your current dividend generators is to check the dividend cover (earnings per share divided by dividend per share). Dividend cover is the inverse of the dividend payout ratio. Dividend cover of two times or above is strong. Anything below one and a half times - as is the case for Micro Focus International (LON:MCRO) - should be stirring us to investigate in more detail.

Calculating Micro Focus International’s dividend cover ratio 

A low level of dividend cover means that a small decline in earnings could consign your dividend payment to the scrap heap. It happens all the time. With that in mind, let’s take a look at Micro Focus International’s dividend cover.

We can get all the information we need to see if Micro Focus International has an adequate level of dividend cover from the group’s StockReport. The group’s FY18 earnings per share were 4.1c and its FY18 dividend per share was 70c. 

Divide the former by the latter and we get an FY18 dividend cover for Micro Focus International of 0.058. This is below the 1.5 times cover limit that marks the point at which we should do some further digging on dividend sustainability and safety. The group's normalised earnings per share were much higher, however, at $2. If this normalised figure is fair, then that provides the company with a much healthier FY18 dividend cover of 2.85x.

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