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
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.