Dividend payout ratio
What is the Dividend payout ratio?
The Dividend payout ratio shows how much in dividends was paid to shareholders relative to the company's net profit. For example, it is the percentage of earnings that was paid by dividends by shareholders. This is calculated as total dividends per share declared including extra dividends for the primary share class of the company for the period divided by Earnings per share, multiplied by 100.
What does the Dividend payout ratio mean?
The dividend payout ratio shows how much money from a company's profit is paid to its shareholders, and how much remains inside the company to invest in its expansion and operations.
Typically with young companies, most of the income is reinvested in their development. Therefore, they are expected to have a small Dividend payout ratio or not pay a dividend at all. The dividend payout ratio is generally preferred by fixed income investors or those looking primarily for dividend income. A high ratio and low ratio is generally considered good or bad if the company itself is financially stable and growing. It has to be able to afford its dividend payout ratio while also maintaining the business. Investors are wary of Dividend payout ratios near or above 100%, since this means that a company pays more than it earns.