Payout Ratio

Online Calculators for Business & Investment

Payout Ratio

The Payout Ratio is the proportion of earnings that is paid out in dividends. It uses dividends per share and removes this from EPS and expresses the results as a percentage. What can also be determined from this ratio is the ‘retention ratio’ (the amount of earnings retained in the business) as this is simply ‘1 – Payout Ratio’.

Based on the concept that stockholders are owners of the business and should therefore receive the benefits (profits) of the business, the Payout Ratio determines what percentage of these profits are returned to shareholders as dividends.

When it comes to the ‘retention ratio’ this can be used as guide on how much of the generated profits is being retained in the business, which ultimately can be used for growth and increased profits down the track.

How you value and select your investments will determine whether you place more weight on the Payout Ratio or the ‘retention ratio’. Essentially it comes down to whether you prefer to control the profits of the business yourself (i.e. take the dividend and decide what to do with the cash) or whether you prefer your investment‘s management to control the funds (i.e. leave the funds in the business and have management make the investments from there).

The Payout Ratio is given as a percentage. It represents the percentage of earnings (EPS) ‘paid out’ as dividends. Thus a Payout Ratio of 25% means that given the stated EPS, 25% of that figure was the level of dividends per share. Or that 25% of earnings was ‘paid out’.

Payout Ratio Calculator

The calculator asks for:
Dividends per Share, which is found via company announcements or the financial media.
Earnings per Share (EPS), which is found via company announcements or the financial media.

Dividends per Share ($):

Earnings per Share ($):

Payout Ratio (%):

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