The dividend payout ratio is the amount of dividends paid to stockholders relative to the amount of total net income of a company. i.e., the percentage of earnings paid to shareholders in dividends.
Formula:
DPR = DPS ÷ EPS
where,DPR = Dividend payout ratio
DPS = Dividends per share
EPS = Earning per share
The payout ratio can also be expressed as dividends paid out as a proportion of cash flow. The dividend payout ratio is used to examine if a company’s earnings can support the current dividend payment amount.
Dividend payout ratio discloses what portion of the current earnings the company is paying to its stockholders in the form of dividend and what portion the company is ploughing back in the business for growth in future. The formula for calculate Dividend Payout Ratio is dividend per share ÷ earnings per share for a specific period.