Payout Ratio

The Payout Ratio calculates the percentage of Net Income that is paid to Shareholders as a Dividend. The portion not paid as a Dividend, goes to Shareholders Funds as Retained Earnings.

For Stock Investors focusing on Dividend-paying Stocks, the Payout ratio is a key ratio to monitor. The Payout Ratio is not a Valuation ratio. It is calculated on a “Per Share” basis. The Payout Ratio is calculated by the following formular.

Payout Ratio = DPS / EPS

At the end of the FY, Net Income can be used to pay dividends, the remainder is held in Shareholders Equity under Retained Earnings. Another Ratio for Dividend focused Investors to keep in mind is Operating Cash Flow per Share dividend by Dividend per Share.