payout ratio

Payout Ratio

The percentage of earnings paid out in dividends. It is calculated by dividing dividends per share by earnings per share.

Investopedia Commentary

The payout ratio indicates how well earnings support the dividend payments: the lower the ratio, the more secure the dividend.

Related Links

How and Why Do Companies Pay Dividends?
The Importance of Dividends
How Dividends Work For Investors
The Power of Dividend Growth

See also: Dividend, Earnings per Share, Retention Ratio

payout ratio

The ratio from which the percentage of net income a firm pays to its stockholders in dividends is calculated. Companies paying most of their earnings in dividends have little left for investment to provide for future earnings growth. Stock of firms with high payout ratios appeals primarily to investors seeking high current income and limited capital growth. Also called dividend payout ratio. See also dividend coverage, retained earnings.