Dividend Payout Ratio Calculator
Calculate the percentage of earnings paid as dividends
Payout Ratio Formulas
Understanding Dividend Payout Ratio
The Dividend Payout Ratio shows what percentage of net income a company pays out as dividends to shareholders. A 40% payout ratio means 40 cents of every dollar earned goes to dividends; 60 cents is retained for reinvestment.
Payout ratios vary significantly by industry and company maturity. Growth companies typically have low or zero payout ratios, reinvesting all earnings. Mature companies often pay 40-60% of earnings as dividends.
The inverse of payout ratio is retention ratio—earnings kept in the business. Both ratios must sum to 100%. Retention ratio × ROE determines the sustainable growth rate of book value.
Payout Ratio Interpretation
0-20%
Growth focus. Reinvesting most earnings. Common for tech and growth stocks.
20-50%
Balanced approach. Dividends with room for growth and safety margin.
50-70%
Income focus. Mature companies with stable earnings. Typical for utilities.
>80%
High payout. Limited reinvestment. May be unsustainable if earnings drop.
Payout Ratios by Sector
| Sector | Typical Payout | Notes | Yield Focus |
|---|---|---|---|
| REITs | 80-100% | Required by law | High |
| Utilities | 60-80% | Stable earnings | High |
| Consumer Staples | 50-70% | Defensive sector | Medium |
| Financials | 30-50% | Capital requirements | Medium |
| Technology | 0-30% | Growth reinvestment | Low |
Analyzing Payout Ratios
Use Normalized Earnings
One-time gains or losses distort payout ratios. Use normalized or average earnings for better analysis.
Check Free Cash Flow
Dividends are paid from cash, not earnings. Compare dividends to free cash flow for sustainability.
Track Consistency
Stable or growing payout ratios signal commitment to dividends. Volatile ratios indicate uncertainty.
Consider Buybacks
Some companies return cash via buybacks instead of dividends. Total payout includes both.
Frequently Asked Questions
Can payout ratio exceed 100%?
Yes, if dividends exceed net income. Companies may pay dividends from retained earnings during temporary earnings dips. A sustained 100%+ payout is unsustainable—watch for dividend cuts.
What's a safe payout ratio?
Generally 40-60% is considered safe—enough dividend to attract income investors while retaining earnings for growth and a cushion for earnings volatility. Industry norms vary significantly.
How does payout ratio affect stock price?
Higher payout attracts income investors but may limit growth. Lower payout allows reinvestment but may disappoint income seekers. The optimal ratio depends on growth opportunities and investor base.
What's dividend cover?
Dividend cover is the inverse of payout ratio: Earnings ÷ Dividends. A cover of 2x means earnings are twice dividends (50% payout). Higher cover indicates more sustainable dividends.
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