Dividend payout ratio

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Dividend payout ratio

Percentage of earnings paid out as dividends.

Dividend Payout Ratio

In fundamental analysis, the opposite of the plowback ratio. That is, the dividend payout ratio is a company's dividends paid to shareholders expressed as a percentage of total earnings. A higher ratio indicates that a company pays more in dividends and thus reinvests less of its earnings into the company. Whether or not this is desirable depends on the rate of growth; investors tend to prefer a higher payout ratio in a slow-growing company and a lower one in a fast-growing company.

dividend payout ratio

Dividend payout ratio.

You can calculate a dividend payout ratio by dividing the dividend a company pays per share by the company's earnings per share. The normal range is 25% to 50% of earnings, though the average is higher in some sectors of the economy than in others.

Some analysts think that an unusually high ratio may indicate that a company is in financial trouble but doesn't want to alarm shareholders by reducing its dividend.

References in periodicals archive ?
Anil, Kanwal and Sujata Kapoor (2008) in their research paper titled "Determinants of dividend payout ratios--A study of Indian Information Technology sector" published in International Resource Journal of Finance and Economics have tried to identify various factors like profitability , cash flows etc which influence the dividend payout ratio in Information Technology sector in India in the current scenario.
Some evidence suggests that there is significant variation in dividend payout ratios among industries [Baker (1988); Michel (1979)].
Using a relatively exogenous measure that incorporates state antitakeover laws and the differences-in-differences approach, our analysis indicates that dividend payout ratios and propensities fall when managers are insulated from takeovers.
Hexter, Langrehr, and Holder (1998) concluded that corporate focus is negatively related to dividend payout ratios.
Although dividend payouts are generally smaller for repurchasing firms, as compared to their industry peers, the dividend payout ratios increase once the stock buyback program is over.
With the emergence of share repurchases and desire by firms to increase their financial flexibility, dividend payout ratios, on average, are decreasing.
However, Fitch acknowledges signs of improvement in several of EOP's more challenging markets and expects these improvements to strengthen coverage and dividend payout ratios late in 2005.
In this connection, after analyzing the implications of the TRA on individual and corporate investors, Ben-Horim, Hochman and Palmon |5^ predict that dividend payout ratios should increase in the post-TRA period.
Negative factors include the high level of dividend payout ratios to its parent.
Fitch sees potential for rating action, citing the most probable causes as declining margins and increased subscriber incentives in the wake of aggressive competition, debt-funded M&A activity, high or increased dividend payout ratios and the failure to improve credit protection measures in response to the continuing tough market conditions.
Offsetting these positive rating factors are the consistently high expense ratios--which are approximately 60%--and heavy dividend payout ratios during the last five years.
Offsetting these positive rating factors are the consistently high expense ratios of approximately 60% and heavy dividend payout ratios during the past five years.