Dividend payout formula
Dividend Payout Ratio Calculator
This free dividend payout ratio calculator shows what share of a company's earnings it pays out as dividends, from dividends and earnings per share or from total dividends and net income. Enter a ticker to start from its latest fiscal year of dividends paid and net income.
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Paying $2 in dividends out of $4 of earnings is a 50.00% payout ratio, so the company kept 50.00% of its earnings. Measured against $5 of free cash flow, the same dividend is a 40.00% cash flow payout ratio.
Dividend payout ratio formula
The dividend payout ratio formula divides dividends by earnings: dividends per share (DPS) divided by earnings per share (EPS), or total dividends divided by net income. Multiply the result by 100 to read it as a percentage.
To find the dividend payout ratio of a real company, take dividends paid from the cash flow statement and net income from the income statement, or the yearly dividend per share and EPS from a quote page. For most US stocks, the yearly dividend is four quarterly payments. Use the same period for both, such as one fiscal year.
The dividend per share formula is total dividends divided by shares outstanding, so the per-share and the total version of the payout ratio come out about the same.
A worked example
Say a company pays $2 a share in dividends and earns $4 a share. $2 divided by $4 is a 50.00% payout ratio, which leaves a 50.00% retention ratio, and earnings covered the dividend 2.00x.
If its free cash flow was $5 a share, the same $2 dividend is a 40.00% free cash flow payout ratio, covered 2.50x by cash.
Now say earnings fall to $1.60 a share while the dividend stays at $2. The payout ratio rises to 125.00%: the company paid out more than it earned, and the retention ratio turns negative at -25.00%.
Good payout ratios
The payout ratio means the share of profit a company hands to shareholders as dividends, and no single good dividend payout ratio fits every company.
A lower ratio leaves room to keep paying the dividend if profits dip for a year or two. Utilities and REITs pay out more by design, and REITs must distribute at least 90% of their taxable income, so their payout ratios run high by rule.
Above 100%, the company paid more in dividends than it earned that period. When earnings are zero or negative, the ratio is not meaningful, so the calculator says so instead of showing a negative number.
The Payout Ratio on GNG stock pages covers the last 12 months and, for REITs, utilities and some other companies, measures dividends against operating cash flow instead of net income, so it can differ from this calculator.
Retention ratio
The retention ratio, also called the plowback ratio, is the share of earnings a company keeps as retained earnings to fund growth or pay down debt. The retention ratio formula is 1 minus the payout ratio, so a 40% payout ratio leaves a 60% retention ratio.
When the payout ratio is above 100%, the retention ratio turns negative: the company paid out more than it kept.
Payout vs yield
Dividend yield is the yearly dividend divided by the share price, so it rises when the price falls. The payout ratio is the dividend divided by earnings, so it rises when profits fall. A high yield next to a payout ratio near or above 100% is a reason to look closer at the company.
To see the payout ratio and coverage for each of the last 10 fiscal years, use the dividend coverage ratio checker.
Dividend payout ratio calculator FAQ
- What is the dividend payout ratio?
- It is the share of a company's profit paid to shareholders as dividends over a period, usually a fiscal year. A 40% payout ratio means 40 cents of each dollar earned went to dividends and 60 cents stayed in the business.
- How do you calculate the dividend payout ratio?
- Divide the dividends per share by the earnings per share, or total dividends by net income, and multiply by 100. A company that pays $2 a share in dividends and earns $5 a share has a 40% payout ratio.
- What is a good payout ratio?
- There is no single number that fits every company. A lower ratio leaves more earnings to keep paying the dividend if profits fall, while utilities and REITs usually pay out more, and REITs must distribute at least 90% of their taxable income.
- What does a payout ratio over 100% mean?
- The company paid more in dividends than it earned over that period, so the difference came from cash on hand, borrowing or other sources. Free cash flow shows whether cash, not just accounting earnings, covered the payment.
- What is the retention ratio?
- The retention ratio, also called the plowback ratio, is the share of earnings a company keeps: 1 minus the payout ratio. A 40% payout ratio means a 60% retention ratio.
- Why can a REIT's payout ratio be above 100%?
- REITs subtract large depreciation charges from earnings, so net income can understate the cash they bring in, and they must pay out at least 90% of taxable income. Investors often compare REIT dividends with funds from operations (FFO) instead.
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Sign Up FreeThis calculator is for education and is not investment advice. A payout ratio describes past results and does not show whether a dividend will continue. Read our disclosures.