Target payout ratio

(redirected from Target Payout Ratios)

Target payout ratio

A firm's long-run dividend-to-earnings ratio. The firm's policy is to attempt to pay out a certain percentage of earnings, but it pays a stated dollar dividend and adjusts it to the target as base line increases in earnings occur.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Target Payout Ratio

The dividend that a publicly-traded company attempts to pay to shareholders each year as a percentage of its total earnings in a given year. There is no guarantee that the company will be able to pay the target payout ratio; if its earnings are particularly low in a year, it may pay a smaller percentage or even no dividend at all. It is important to note that even if the target payout ratio remains the same, the actual dividend may differ as earnings change each year and the payout ratio is a percentage rather than a dollar amount. See also: Omitted Dividend.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
(6) Moreover, higher target payout ratios for firms under incentive regulation are found in all generalized method of moments (GMM) specifications.
State-controlled firms engage in dividend-smoothing and have the highest target payout ratios while, in marked contrast, dividend payments of family-controlled firms are not subject to dividend-smoothing.
Firms have moderate target payout ratios and adjustment factors.
The essential features of the Lintner model are that tax and nontax variables determine both the target payout ratios and the rates at which actual dividends adjust to desired dividends.
The evidence in Table VI indicates that the combination of high leverage and significant investment opportunities motivates firms to increase target payout ratios for their foreign affiliates.
In addition, while these companies have target payout ratios, they do not follow stable dividend policies.
"Emerging market firms often do have a target payout ratio like their developed country counterparts, but they are generally less concerned with volatility in dividends over time and, consequently, dividend smoothing over time is less important" (Glen et al., 1995, p.24).
They adapt their dividend payout ratios to their investment opportunities, although dividends are sticky and target payout ratios are only gradually adjusted to shifts in the extent of valuable investment opportunities.
If the surplus persists, it may gradually increase its target payout ratio.]
Firms prefer internal financing to external financing and will adapt their target payout ratios to their investment opportunities.
However, the very few (only three) regressions with negative and significant coefficients |b.sub.3^ for quintile 5 suggest that the evidence is weaker with respect to a systematic downward adjustment of target payout ratios than indicated by the matched-pairs t-test results.
where c is the adjustment factor, r is the target payout ratio and p is the hypothesized incremental change in the target payout ratio as a result of the TRA.