Difference between revisions of "Calculate the Dividend Payout Ratio"
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| − | + | In finance, the dividend-payout ratio is a way of measuring the fraction of a company's earnings that are paid to investors in the form of dividends rather than being re-invested in the company in a given time period (usually one year). In general, companies with higher dividend-payout ratios tend to be older, more established companies that have already grown significantly, while companies with low payout ratios tend to be younger companies with high growth potential. To find a business's dividend-payout ratio for a given time period, use either the formula '''Dividends paid divided by Net income''' or '''Yearly dividends per share divided by Earnings per share'''. Those formulas are equivalent to each other. | |
[[Category:Financial Ratios]] | [[Category:Financial Ratios]] | ||
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#* There are exceptions to this trend. Established companies with high potential for future growth can sometimes get away with offering payout ratios over 100%. For instance, in 2011 AT&T paid about $1.75 in dividends per share and only earned about $0.77 per share. That was a payout ratio of over 200%. However, because the company's estimated earnings per share in 2012 and 2013 were both well over $2 per share, the short-term inability to sustain its dividend payouts did not impact the company's long-term financial outlook. | #* There are exceptions to this trend. Established companies with high potential for future growth can sometimes get away with offering payout ratios over 100%. For instance, in 2011 AT&T paid about $1.75 in dividends per share and only earned about $0.77 per share. That was a payout ratio of over 200%. However, because the company's estimated earnings per share in 2012 and 2013 were both well over $2 per share, the short-term inability to sustain its dividend payouts did not impact the company's long-term financial outlook. | ||
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== Warnings == | == Warnings == | ||
