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The Dividend Payout Ratio measures the percentage of Stock Dividends per share to the Earnings Per Share, showing how the company is paying for its dividend payout.[sc:kit02 ]
Dividend Payout Ratio Formula
Explanation of Dividend Payout Ratio
The Dividend Payout Ratio measures the percentage of Stock dividends per number of Average Shares Outstanding to the Earnings per Share , showing how the company is paying for its dividend payout. The dividends paid should be coming from earnings the company generates.
Importance of Dividend Payout Ratio
A decreasing Dividend Payout ratio is generally a positive sign, showing the company is more able to cover its dividend payout with its Net Earnings. A company in financial trouble may have to use its own cash to meet its dividend obligations, which may be revealed with this ratio if the ratio is less than 1.0.