What Is a Dividend Payout Ratio? (2024)

FAQs

What Is a Dividend Payout Ratio? ›

The dividend payout ratio is the total amount of dividends that a company pays to shareholders relative to its net income. Put simply, this ratio is the percentage of earnings paid to shareholders via dividends.

So, what counts as a “good” dividend payout ratio? Generally speaking, a dividend payout ratio of 30-50% is considered healthy, while anything over 50% could be unsustainable.

A company that is likely to distribute roughly half of its earnings as dividends means that the company is well established and a leader in its industry. It's also reinvesting half of its earnings for growth, which is welcome. A company typically raises money from 2 sources: debt and equity.

Generally speaking, a DCR of 2 is viewed as good, as this indicates that a company has the capacity to pay its dividends twice over. A DCR of below 1.5 is viewed as a possible concern, signalling the use of loans.

Dividend payout ratio refers to a financial metric that measures the percentage of a company's earnings paid out to shareholders as dividend. This ratio is calculated by dividing the total amount of dividends paid by the company by its net income for a given period.

Dividend Data

Apple Inc.'s ( AAPL ) dividend yield is 0.45%, which means that for every $100 invested in the company's stock, investors would receive $0.45 in dividends per year. Apple Inc.'s payout ratio is 14.9% which means that 14.9% of the company's earnings are paid out as dividends.

Basic Info. S&P 500 Dividend Yield is at 1.32%, compared to 1.35% last month and 1.54% last year. This is lower than the long term average of 1.83%.

A low payout ratio can signal that a company is reinvesting the bulk of its earnings into expanding operations. A payout ratio over 100% indicates that the company is paying out more in dividends than its earnings can support and this could be an unsustainable practice.

What Is a Good Dividend Yield? Yields from 2% to 6% are generally considered to be a good dividend yield, but there are plenty of factors to consider when deciding if a stock's yield makes it a good investment. Your own investment goals should also play a big role in deciding what a good dividend yield is for you.

Typically, a REIT with a payout ratio between 35% and 60% is considered ideal and safe from dividend cuts, while ratios between 60% and 75% are moderately safe, and payout ratios above 75% are considered unsafe. As a payout ratio approaches 100% of earnings, it generally portends a high risk for a dividend cut.

What is the top dividend payout ratio? ›

A low dividend payout is when a company keeps the majority of its profits and reinvests it in the business and then gives out the rest as dividends. For example, if a company reinvests 60% of its profits back into the business and then pays out the rest in dividends, it has a dividend payout of 40%.

So, what counts as a “good” dividend payout ratio? Generally speaking, a dividend payout ratio of 30-50% is considered healthy, while anything over 50% could be unsustainable.

A constant dividend payout ratio policy is a dividend policy in which the percentage of earnings paid in the form of dividends is held constant. In other words, a constant dividend payout ratio policy maintains the same proportion of earnings paid out as dividends to shareholders.

Dividend Yield: Dividend yield measures the income investors earn for every dollar they invest. It's calculated by dividing the annual dividend per share by the stock's current price. Dividend Payout Ratio: Dividend payout ratio measures how much of a company's earnings are paid out to its investors.

For example, a payout rate of 30% is good for a company in a more growth-focused industry like tech, where retaining profits for R&D is crucial.

The dividend payout ratio is 0% for companies that do not pay dividends and 100% for companies that pay out their entire net income as dividends.