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What Is the Dividend Payout Ratio?

The dividend payout ratio shows what portion of a company's net income is returned to shareholders as dividends.

How it is calculated

The dividend payout ratio is calculated as "total dividends paid ÷ net income × 100," or equivalently, using per-share figures, as "dividend per share ÷ EPS (earnings per share) × 100." Both formulas give the same result.

What to keep in mind

Rather than looking at a single year's figure, checking the trend over several periods makes it easier to grasp a company's general approach to shareholder returns. Keep in mind that typical levels vary by industry, and companies with volatile earnings tend to see larger swings in their payout ratio as well.

This article is provided for general informational purposes only and does not recommend or solicit the purchase or sale of any specific investment method or security. Final investment decisions are your own responsibility.

Frequently Asked Questions

Does a higher payout ratio mean a better company?
Not necessarily. A company with a high payout ratio is returning more profit to shareholders, but it also retains less earnings for future investment. It is important to also look at the company's business and growth stage.
Where can I check a company's dividend payout ratio?
It can be found in earnings summaries, securities reports, and brokerage stock information pages. Note that the ratio cannot be meaningfully calculated in a period when net income is negative.

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