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Definition – What is the Dividend Payout Ratio?
The dividend payout ratio is the ratio of dividends paid to net income earned by the corporation.
A dividend payout ratio of ‘0’ means that the corporation pays no dividends.
A dividend payout ratio of ‘1’ means that 100% of net income is paid as dividends.
A dividend payout ratio of ‘0.5’ means that 50% of net income is paid as dividends.
Formula – How to calculate Dividend Payout Ratio
Dividend Ratio = Dividends Paid / Net Income Earned
Example
A company pays $5,000 in dividends and has a net income of $1,000.
Dividend Ratio = $5,000 / $1,000 = 5.00
Therefore, the company has a dividend ratio of 5.00.
Sources and more resources
- Finance Formulas – Dividend Payout Ratio – The dividend payout ratio and how it is calculated.
- Wikipedia – Dividend payout ratio – Wikipedia’s entry on the dividend payout ratio.
- Investopedia – Dividend payout ratio – A full explanation of the dividend payout ratio.