HOMEPAGE

Dividend Payout Ratio

Definition

The Dividend Payout Ratio measures the percentage of earnings paid out to shareholders as dividends.

$$\text{Payout Ratio}=\frac{\text{Dividends per Share}}{\text{Earnings per Share}}$$

Or:

$$\text{Payout Ratio}=\frac{\text{Total Dividends}}{\text{Net Income}}$$

Why It Matters

• Shows how much profit is returned to shareholders vs. reinvested.
• High payout = income focus.
• Low payout = growth focus.

Interpretation

• High ratio: Mature, stable companies.
• Low ratio: Growth‑oriented companies reinvesting earnings.
• > 100%: Unsustainable — paying more than they earn.

Example

EPS = $5 Dividends per share = $2

$$\text{Payout Ratio}=\frac{2}{5}=40\mathrm{\%}$$