The Dividend Payout Ratio or simply ‘Payout Ratio’ is the ratio of the dividends paid out to shareholders in comparison to net income of the company. It is calculated as a percentage of a company’s earnings paid to shareholders in the form of dividends. As dividend is paid from the retained earnings or surplus of the company, the balance amount can be used to pay off its debt or to reinvest in its business.
Calculation of Dividend Payout Ratio
Calculation of Dividend Payout Ratio Dividend Payout Ratio is calculated as the yearly dividend per share relative to the EPS: Dividend Payout Ratio = Dividend per Share/Earning per Share (EPS)
Or the Dividends paid divided by the company’s Net income: