How do you calculate payout ratio?

The payout ratio is calculated using the following formula: Payout Ratio = (Dividends per Share / Earnings per Share) * 100. This ratio expresses the proportion of a company's earnings paid out as dividends in percentage terms. What does a high payout ratio indicate?

What is a dividend payout ratio?

It is the amount of dividends paid to shareholders relative to the total net income of a company. Generally, the higher the payout ratio, especially if it is over 100%, the more its sustainability is in question. Conversely, a low payout ratio can signal that a company is reinvesting the bulk of its earnings into expanding operations.

What does a high payout ratio mean?

A high payout ratio indicates that a company is paying a large portion of its earnings as dividends. This could be a sign of a mature company with limited growth opportunities. However, a consistently high payout ratio might also suggest that the company is not retaining sufficient earnings to support future growth or pay off debt.