Dividend Payout Ratio

What is a Dividend Payout Ratio?

The dividend payout ratio is the ratio of dividends to net income, and represents the proportion of net income paid out to equity holders.

The dividend payout ratio formula can be stated as follows:

Dividends payout ratio = Dividends / Net income

The calculation can be done on a per share basis by dividing each amount by the number of shares in issue.

Dividends payout ratio = Dividends per share / Earning per share = DPS / EPS

Any net income not paid to equity holders is retained for investment in the business.

A high dividend payout ratio is good for short term investors as it implies a high proportion of the profit of the business is paid out to equity holders. However, a high dividend payout ratio leads to low re-investment of profits in the business which could result in low capital growth for both the business and investor. A long term investor might be prepared to accept a lower dividend payout ratio in return for higher re-investment of profits and higher capital growth.

For further information on see the Wikipedia definition.

Learn a new bookkeeping term

Random bookkeeping terms for you to discover.

Link to this page

Click in the box to copy and paste the dividend payout ratio definition link to your site.

Return to the Glossary

Dividend Payout Ratio December 20th, 2017Team

You May Also Like

Related pages

trial balance calculatormulti column cash bookaccounts payable examplessimple payback calculationmaterial variances formulasstock turnover ratio formula in daysaccrued expenses in income statementdepreciation expense is an example of an accrued expensestandard costing in cost accountingnpv calculations in excelapproximate doubling time formulapresent value of growing perpetuitywhat is included in manufacturing overheadnpv of annuitypercentage completion methodaccruals examplesjournal entry of bad debtslifo method exampletime sheet spreadsheetamortization on income statementredemption of bonds payableaccounting concepts and principles with examplesprovision for annual leave journal entrypresent value of perpetuity calculatorbookkeeping manual pdfformula of arrprepaid insurance journal entryaccounting spreadsheet templates excelar turnover calculationcompound interest and simple interest formulasexamples of double entry bookkeepingdeferred tax asset accountbad debts in profit and loss accountaccounting quizzes with answerscash voucher meaningdebtors days formularetained earnings debit or credit balanceemployee timesheet templateperpetuity growth rate formulashipping terms fobdeferred tax liability meaningmileage claim templatestockholder equityreconcile accounts payableamortization table makerhow to calculate weighted average inventorybond amortization accountingmirr financial calculatortrade discount accountingpmt function on excelaccounting ledger samplepresent value coupon bondsample requisition slip formtrade and other receivables examplesgoodwill accounting treatment examplemeaning of prepaid expensesjournal entries for accrualsdeferred tax conceptpreparing a bank reconciliation statementincome tax payable journal entrycalculate asset turnover ratiopmt function calculatoravailable for sale securities journal entrieshow to calculate depreciation rate for reducing balance methodgeneral ledger papersum of the years digits depreciation calculatordebits and credits journal entriesbad debt accounting entrydebits and credits quizstockholders equity examplessample payment voucher templateexamples of profitability ratiossample of debit and credit entryreversing entries accountingdepreciation double entry