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What percentage of profits a company pays as dividends.
Why It Matters
Payout ratio tells you if a dividend is sustainable. A company paying out 30% of earnings as dividends has room to grow it. A company paying out 90%+ is stretched thin - one bad quarter could force a dividend cut. Johnson & Johnson's ~40% payout ratio is healthy; a 120% ratio means they're paying more than they earn.
Key Points
- Calculate: Annual Dividend per Share ÷ Earnings per Share × 100
- Under 50% is generally healthy; over 80% may signal risk of a cut
- REITs often have 90%+ ratios because they're legally required to distribute most income
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Common Questions
What percentage of profits a company pays as dividends. Payout ratio tells you if a dividend is sustainable. A company paying out 30% of earnings as dividends has room to grow it.
Payout ratio tells you if a dividend is sustainable. A company paying out 30% of earnings as dividends has room to grow it. A company paying out 90%+ is stretched thin - one bad quarter could force a dividend cut. Johnson & Johnson's ~40% payout ratio is healthy; a 120% ratio means they're paying more than they earn.
Calculate: Annual Dividend per Share ÷ Earnings per Share × 100
Under 50% is generally healthy; over 80% may signal risk of a cut
REITs often have 90%+ ratios because they're legally required to distribute most income