Dividend payout ratio
Dividends paid as a share of earnings or free cash flow.
Plain languagePractical exampleConnected reading
01
What is it?
Dividends paid as a share of earnings or free cash flow.
02
Why does it matter?
It helps assess how well distributions are covered by profit and cash generation.
03
How should it be read?
Separate earnings-based and cash-based ratios, special dividends and cyclicality.
04
Common mistake
Treating the historical ratio as a guaranteed future policy.
A simple example
Dividends of 20 on net income of 50 imply a 40% earnings payout ratio.