What Is Payout Ratio? Meaning & Example
Definition
The payout ratio is the share of a company's earnings paid out as dividends. Very high ratios can mean the dividend is hard to sustain.
Related terms
A dividend is a payment a company makes to its shareholders, usually from profits. Dividends are typically paid in cash on a regular schedule, but they are never guaranteed.
Earnings Per Share (EPS)Earnings per share is a company's net profit divided by its number of shares outstanding. It shows how much profit is attributed to each share.
Dividend YieldDividend yield is the annual dividend per share divided by the share price, expressed as a percentage. It shows the income return from dividends alone.
What is Payout Ratio?
The payout ratio is the share of a company's earnings paid out as dividends. Very high ratios can mean the dividend is hard to sustain.
Can you give an example of Payout Ratio?
A company earning $4 per share and paying $1.60 in dividends has a 40% payout ratio.