Payout Ratio
Learn how to calculate and interpret Payout Ratio with its formula, a worked example, industry context and common mistakes.
Measures the share of earnings distributed to shareholders as dividends.
Formula
Payout Ratio = Dividend per Share / Earnings per Share x 100%
Worked exampleA $2.40 annual dividend divided by $4.00 EPS produces a 60% payout ratio.
Calculation steps
- Find annual dividend per share: $2.40.
- Find EPS for the same period: $4.00.
- Divide and multiply by 100 to get 60%.
How to interpret it
A lower ratio generally leaves more room for reinvestment and dividend protection, while a very high ratio may limit flexibility.
Industry context
REITs and other distribution structures use different definitions and may be better assessed with funds from operations or cash flow.
Accounting and market variations
Definitions, reporting choices, periods, capital structures, and market conventions can change how this metric should be compared.
- Match dividend and earnings periods.
- Do not rely on EPS when it is negative or distorted.
- Check cash payout ratios as a second view.