What is the 'Payout Ratio'
Payout ratio is the proportion of earnings paid out as dividends to shareholders, typically expressed as a percentage. The payout ratio can also be expressed as dividends paid out as a proportion of cash flow. The payout ratio is a key financial metric used to determine the sustainability of a companyâ€™s dividend payments. A lower payout ratio is generally preferable to a higher payout ratio, with a ratio greater than 100% indicating the company is paying out more in dividends than it makes in net income.
The Payout Ratio is calculated as follows:
Payout Ratio = Dividends per Share (DPS) / Earnings per Share (EPS)
Also known as dividend payout ratio.
BREAKING DOWN 'Payout Ratio'
For example, Company X with earnings per share of $1 and dividends per share of $0.60 has a payout ratio of 60%. Company Y with earnings per share of $2 and dividends per share of $1.50 has a payout ratio of 75%. Which company has the more sustainable payout ratio?
It really depends, since there is no single number that defines an appropriate payout ratio. The adequacy of the payout ratio depends very much on the sector. Companies in defensive industries â€“ such as utilities, pipelines, and telecommunications â€“ have stable and predictable earnings and cash flows, and thus can support much higher payouts than cyclical companies. Companies in cyclical sectors like resources and energy typically have lower payouts since their earnings fluctuate considerably in line with the economic cycle.
In the previous example, if Company X is a commodity producer and Company Y is a regulated utility, Yâ€™s dividend sustainability may be better than that of X, even though X has a lower absolute payout ratio than Y.
Many companies set a target range for their payout ratios, and define them as a percentage of sustainable earnings, or cash flow. The companies with the best longterm record of dividend payments have stable payout ratios over many years. While many bluechip companies increase their dividends year after year, since they have steady earnings growth as well, their payout ratios remain remarkably stable over extended periods. Â Â Â

Dividend Payout Ratio
The percentage of earnings paid to shareholders in dividends. ... 
Target Payout Ratio
A target payout ratio is a measure of what size a company's dividends ... 
Payout
The expected financial return from an investment over a given ... 
Retention Ratio
The proportion of earnings kept back in the business as retained ... 
Lifetime Payout Annuity
A type of insurance product that pays out a portion of the underlying ... 
Dividend Rate
The total expected dividend payments from an investment, fund ...

Investing
Corporate Dividend Payouts And the Retention Ratio
An investor can use dividend payout and retention ratios to gauge an investmentâ€™s possible return, and compare it to other stocks. 
Investing
A Guide For Calculating The Dividend Payout Ratio
Dividends are a significant contributor to total equity returns. That makes dividend payout ratiosâ€”which are key indicators of dividend sustainabilityâ€”doubly important. 
Markets
4 Ratios to Evaluate Dividend Stocks
Discover details about fundamental analysis ratios that could help to evaluate dividend paying stocks, and learn how to calculate these ratios. 
Investing
Dividend Ratios: Payout And Retention
The dividend payout ratio and retention ratio measure how much profit a company gives back to shareholders as dividends. When a business earns money, it must decide whether to use all of its ... 
Markets
Do Interest Rate Changes Affect Dividend Payers?
Interest rate changes have an effect on prices of dividendrich stocks in interest rate sensitive sectors like utilities, pipelines, telecommunications and REITs. 
Investing
Dividend Payout Ratio
Discover how this ratio can help you determine how well a company's earnings support its dividend payments. 
Investing
Does Costco Stock Pay Dividends?
Understand Costco's dividend payout strategy and whether it is a good income investment. Learn about key factors contributing to its payout ratio. 
Investing
6 Rules for Successful Dividend Investing
Dividend investing is a smart way to build wealth but there are some important rules investors must remember in order to maximize value. 
Investing
McDonald's Stock: A Dividend Analysis (MCD)
Learn about the strength of McDonald's annual dividend through an analysis of its financial statements and several financial ratios. 
Markets
Seven Sustainable Retail Dividends
Seven retailers which pat sustainable dividends when examining both the companies' payout ratios and free cash flows.

How do I calculate dividend payout ratio from a balance sheet?
Understand what the dividend payout ratio indicates and learn how it can be calculated using the figures from a company's ... Read Answer >> 
For what types of investments is the payout ratio the most relevant?
Find out about the payout ratio, what the payout ratio measures and the type of investment that the payout ratio is used ... Read Answer >> 
Are dividend payout ratios different in different economic sectors?
Discover which economic sectors have traditionally higher or lower dividend payout ratios and the various factors that determine ... Read Answer >> 
What are some possible red flags in a company's dividend payout ratio?
Read about how investors and analysts use the dividend payout ratio to scrutinize the sustainability of a company's dividend ... Read Answer >> 
What is the difference between dividend yield and dividend payout ratio?
Understand the difference between the dividend yield and the dividend payout ratio, two basic investment valuation measures ... Read Answer >> 
What is the difference between the dividend yield and the dividend payout ratio?
Learn the differences between a stock's dividend yield and its dividend payout ratio, and learn why the latter might be a ... Read Answer >>