Financial Encyclopedia
Dividend payout ratio
Definition
Dividend Payout Ratio is an indicator that reflects what share of net profit is paid to shareholders in the form of dividends.
Example
The company earned 1,000,000 $ (profit) in a year. It pays 400,000 $ as dividends. Devide dividends (400,000$) by profit (1,000,00$). The coefficient is 0.4 or 40%.
More detailed
The dividend payout ratio is calculated as the annual dividend per share divided by earnings per share, or total dividends divided by net income.
The dividend payout ratio is used to check that the company will be able to maintain the current level of dividends in the future. If the ratio exceeds 100%, the company pays out more dividends than it earns profits. However, companies cannot always maintain the ratio at such a high level and are forced to reduce it in the future.
According to Ranks methodology, this indicator is analyzed in the Dividends block and used along with other indicators to calculate the score.
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