Dividend Payout Ratio
The proportion of a company's earnings distributed to shareholders as dividends.
Formula
Dividend Payout Ratio = Dividend per Share / Earnings per Share x 100
Unit
%
In depth
The payout ratio measures sustainability directly: a ratio above 100% means the company is paying out more than it earns, funded from reserves or borrowing, which cannot continue. Its complement is the retention ratio, and the return earned on retained earnings is what determines whether retaining was better than paying out. A low payout is right for a company with high-return reinvestment opportunities and wrong for one without them, which is why the ratio must be read alongside return on capital. Computing it against free cash flow rather than accounting earnings is the stricter and more informative test.
Worked example
A ₹1.20 dividend against ₹3.00 earnings per share is a 40% payout, retaining ₹1.80. If the retained rupees earn 20% while the cost of equity is 12%, retention creates value; at 6% it destroys it.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Dividend Payout Ratio” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.