The proportion of earnings paid out as dividends to shareholders, typically expressed as a percentage. The payout ratio can also be expressed as dividends paid out as a proportion of cash flow.
The payout ratio is a key financial metric used to determine the sustainability of a company’s dividend payments.
A lower payout ratio is generally preferable to a higher payout ratio, with a ratio greater than 100% indicating the company is paying out more in dividends than it makes in net income.
The Payout Ratio is calculated as follows:
Payout Ratio = Dividends per Share (DPS) / Earnings per Share (EPS)
Also known as dividend payout ratio.