Dividend Payout Ratio

Definition of 'Dividend Payout Ratio'

The percentage of earnings paid to shareholders in dividends.

Calculated as:

Remember:

- A reduction in dividends paid is looked poorly upon by investors, and the stock price usually depreciates as investors seek other dividend-paying stocks.

- A stable dividend payout ratio indicates a solid dividend policy by the company's board of directors.

Investopedia explains 'Dividend Payout Ratio'

The payout ratio provides an idea of how well earnings support the dividend payments. More mature companies tend to have a higher payout ratio.

In the U.K. there is a similar ratio, which is known as dividend cover. It is calculated as earnings per share divided by dividends per share.