Payout ratio

The payout ratio is the proportion of bottom line profit that is paid to shareholders as dividends. It is the inverse of dividend cover:

dividend per share ÷ EPS
or, equivalently:
dividends ÷ profit attributable to shareholders

In either case, it is usually expressed as a percentage rather than as a fraction. As its purpose is primarily to asses the sustainability of dividends and the risk of dividend cuts, it should usually be calculated using pre-exceptional profits or EPS.

The dividend payout ratio does matter (see dividend irrelevance and dividend cover), both as a measure of how safe a dividend (low is good) and how willing a company is to pay out cash to shareholders (high is good).

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