Calculate the percentage of earnings paid out to shareholders as dividends
Earnings & Dividends
Dividend Payout Ratio
0%
What is the Dividend Payout Ratio?
The Dividend Payout Ratio tells you what portion of a company's net income is distributed to its owners. The money not paid out is called Retained Earnings, which the company uses to pay off debt or reinvest in core operations. The formula is: $$Payout\ Ratio = \frac{Total\ Dividends}{Net\ Income}$$
- Growth vs. Income: High-growth tech companies often have a 0% payout ratio because they reinvest every dollar. Mature companies (like utilities) often have high ratios (50-70%).
- Sustainability: If a ratio is over 100%, the company is paying out more than it earns, which is usually unsustainable and may lead to dividend cuts.
- Investor Signal: A steady payout ratio is often seen as a sign of financial maturity and confidence in future cash flows.
What is a "Safe" Payout Ratio? +
For most stable companies, a ratio between 30% and 55% is considered safe and healthy. It leaves enough "breathing room" for the company to grow while rewarding shareholders.
Why would a company have a 0% ratio? +
This is common in the "Growth" phase. The company believes it can generate a better return for shareholders by using that cash to expand the business rather than sending it to them as a check.
How does this differ from Dividend Yield? +
Payout Ratio compares dividends to *earnings*. Dividend Yield compares dividends to the *stock price*. Payout tells you about company policy; Yield tells you about your return on investment.
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