Quick Answer: What Does The Dividend Payout Ratio Tell Us?

The dividend payout ratio measures the percentage of net income that is distributed to shareholders in the form of dividends during the year.

In other words, this ratio shows the portion of profits the company decides to keep to fund operations and the portion of profits that is given to its shareholders.

How do you interpret dividend payout ratio?

Dividend Payout Ratio = Total Dividends Paid ÷ Net Income

The dividend payout ratio is presented as a percentage and can be positive or negative. The ratio will generally be positive, but can be negative if the corporation elects to pay a dividend out of prior earnings in a year when a net loss is incurred.

Why is dividend payout ratio important?

The payout ratio is important because it tells investors how much of the company’s profits are being given back to shareholders. Put another way, a payout ratio of 20% means for every dollar the company earns in net income, 20% is being returned to shareholders as a dividend.

What does the payout ratio tell us?

The payout ratio, also known as the dividend payout ratio, shows the percentage of a company’s earnings paid out as dividends to shareholders. A payout ratio over 100% indicates that the company is paying out more in dividends than its earning can support, which some view as an unsustainable practice.

What is a good dividend payout ratio?

Healthy. A range of 35% to 55% is considered healthy and appropriate from a dividend investor’s point of view. A company that is likely to distribute roughly half of its earnings as dividends means that the company is well established and a leader in its industry.