Dividends · updated October 21, 2026
What is the dividend payout ratio and how is it calculated
The payout ratio shows what percentage of yearly profit the company pays out as dividends. The lower it is, the safer the dividend, because the company has room even if profit falls.
The payout ratio formula
- Dividends per share
- Dividends paid over the last 12 months.
- EPS
- Earnings per share over the same period.
Worked example
A company earned $6 per share and paid $3 in dividends.
Half the profit goes to shareholders, half stays in the company for investment or debt.
How to read the payout ratio
Utilities and real estate trusts (REITs) naturally have higher payout ratios, because their revenue is steady and they make few new investments.
When the payout ratio can fool you
A one-off drop in profit: a weak year pushes the ratio above 100% for a while. Check against cash too: compare the dividend with free cash flow, not just with profit.
Related terms
Questions about the payout ratio
What does a payout ratio above 100% mean?
The company pays more than it earns, from reserves or debt. That cannot last long.
These explanations are for information only. They are not a recommendation to buy or sell.
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