Accounting Dictionary

Dividend Payout Ratio

Dividends divided by net income.

This shows the percent of company earnings that is being paid out to stockholders. If the dividend payout ratio is 95%, we would say that the dividend is not safe, not well covered. If the company makes just a little less money, they won’t have enough to pay this dividend next year. If the dividend ratio is 10%, the company could make a lot less money and still afford to keep up the dividends at the same level. In this case the company also has enough left over for investment or a rainy day.

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