A company's trailing 12-month dividends per share divided by the company's trailing 12 month earnings per share.
Benefit
The higher the payout ratio, the more of its earnings a company pays out as dividends. As a company matures, it tends to run out of attractive investment opportunities, so you can expect it to pay out the bulk of its earnings as dividends rather than plow the profits back into its business.
Origin
Dividends are collected from the company’s quarterly or annual income statement, The Wall Street Journal, or Bloomberg. The earnings are found in the company’s quarterly or annual income statements. This information is updated weekly.
For the Pros
A company’s sustainable growth rate is equal to return on equity
(ROE) * (1 – payout ratio).
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