Dividend Payout Ratio

The dividend payout ratio is a financial metric that shows the proportion of a company’s earnings that are paid out to shareholders as dividends. It is calculated by dividing the total dividends paid by the company’s net income. A high payout ratio means the company distributes most of its profits as dividends, while a low ratio indicates the company is retaining more earnings for growth or other purposes. Investors use the dividend payout ratio to assess how sustainable a company’s dividend payments are and whether the company has room to increase dividends in the future.

Example

If a company has a net income of $1 million and pays $500,000 in dividends, its payout ratio would be 50%.