1. What is the Dividend Payout Ratio?

The Dividend Payout Ratio measures the percentage of a company's net income that is distributed to shareholders as dividends. It indicates how much profit is being returned to shareholders versus how much is retained for growth.

2. How Does the Calculator Work?

The calculator uses the simple formula:

Where:

• \( Dividends \) — Total dividends paid to shareholders (in USD)
• \( Net Income \) — Company's total net profit after taxes (in USD)

Explanation: The ratio shows what portion of earnings is being paid out as dividends versus being reinvested in the company.

3. Importance of Payout Ratio

Details: The payout ratio helps investors assess a company's dividend sustainability, growth potential, and financial health. High ratios may indicate limited growth potential or potential dividend cuts if earnings decline.

4. Using the Calculator

Tips: Enter both dividends and net income in USD. Net income must be greater than zero. The result will be displayed as a decimal (e.g., 0.45 for 45%).

5. Frequently Asked Questions (FAQ)

Q1: What is a good payout ratio?
A: This varies by industry, but generally 30-50% is considered sustainable, allowing both dividend payments and company growth.

Q2: Can the payout ratio exceed 100%?
A: Yes, but this means the company is paying out more than it earns, which is unsustainable long-term.

Q3: How does payout ratio differ from dividend yield?
A: Payout ratio shows dividends as percentage of earnings, while yield shows dividends as percentage of stock price.

Q4: Should I prefer high or low payout ratios?
A: It depends on your goals - high ratios provide more income now, low ratios suggest more growth potential.

Q5: How often should payout ratio be checked?
A: At least quarterly when companies report earnings, as it can fluctuate significantly.