| dividend payout ratio See 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.
What Does Dividend Payout Ratio Mean?
The percentage of earnings paid to shareholders in dividends. It is calculated as follows:
Investopedia explains Dividend Payout Ratio
The payout ratio provides an idea of how well earnings support the dividend payments. More mature companies tend to have a higher payout ratio. In the United Kingdom there is a similar ratio that is known as dividend cover. It is calculated as earnings per share divided by dividends per share.
Related Terms:
• Dividend
• Earnings per Share—EPS
• Ex-Date
• Ex-Dividend
• Record Date
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