The dividend cover can be calculated as:
Earnings per share Net dividend per share
The dividend cover measures the company’s ability to pay or maintain a dividend. The higher the number, the greater the ability to maintain the dividend. If a company is able to pay an increasing dividend over time, the company’s stock price will increase.
Example
Kinder Morgan is a company that has been paying increasing dividends. The snapshot below shows the dividends it has been paying from 2011.
As you can see, dividends paid have been increasing.
Let us examine the share price of the company from 2011.
Source: www.marketwatch.com
As you can see, the share price has been increasing till the end of 2014. The share price of Kinder Morgan started to drop from then as oil prices have decreased drastically. In general, if dividends increase, the share price of a traded company will increase.