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class="mw-content-ltr mw-parser-output" lang="en" dir="ltr"><p>The <b>dividend payout ratio</b> is the fraction of net income a firm pays to its stockholders in dividends: </p> <dl><dd><span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\textstyle {\mbox{Dividend payout ratio}}={\frac {\mbox{Dividends}}{\mbox{Net Income for the same period}}}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="false" scriptlevel="0"> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="false" scriptlevel="0"> <mtext>Dividend payout ratio</mtext> </mstyle> </mrow> <mo>=</mo> <mrow class="MJX-TeXAtom-ORD"> <mfrac> <mstyle displaystyle="false" scriptlevel="0"> <mtext>Dividends</mtext> </mstyle> <mstyle displaystyle="false" scriptlevel="0"> <mtext>Net Income for the same period</mtext> </mstyle> </mfrac> </mrow> </mstyle> </mrow> <annotation encoding="application/x-tex">{\textstyle {\mbox{Dividend payout ratio}}={\frac {\mbox{Dividends}}{\mbox{Net Income for the same period}}}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/9144e740634d9f6c9738aa39a0c3e126e2a1aa1b" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -2.171ex; width:57.412ex; height:5.176ex;" alt="{\textstyle {\mbox{Dividend payout ratio}}={\frac {\mbox{Dividends}}{\mbox{Net Income for the same period}}}}"></span></dd></dl> <p>The part of earnings not paid to investors is left for investment to provide for future earnings growth. Investors seeking high current income and limited capital growth prefer companies with a high dividend payout ratio. However, investors seeking capital growth may prefer a lower payout ratio because capital gains are taxed at a lower rate. High growth firms in early life generally have low or zero payout ratios. As they mature, they tend to return more of the earnings back to investors. The dividend payout ratio is calculated as <a href="/w/index.php?title=Dividends_per_share&action=edit&redlink=1" class="new" title="Dividends per share (page does not exist)">DPS</a>/<a href="/wiki/Earnings_per_share" title="Earnings per share">EPS</a>. </p><p>According to Financial Accounting by Walter T. Harrison, the calculation for the payout ratio is as follows: </p> <dl><dd>Payout Ratio = (Dividends - Preferred Stock Dividends)/Net Income</dd></dl> <p>The <a href="/wiki/Dividend_yield" title="Dividend yield">dividend yield</a> is given by <a href="/wiki/Earnings_yield" title="Earnings yield">earnings yield</a> times the dividend payout ratio: </p> <dl><dd><span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle {\begin{array}{lcl}{\mbox{Current Dividend Yield}}&=&{\frac {\mbox{Most Recent Full-Year Dividend}}{\mbox{Current Share Price}}}\\&=&{\frac {{\mbox{Dividend payout ratio}}\times {\mbox{Most Recent Full-Year earnings per share}}}{\mbox{Current Share Price}}}\\\end{array}}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <mrow class="MJX-TeXAtom-ORD"> <mtable columnalign="left center left" rowspacing="4pt" columnspacing="1em"> <mtr> <mtd> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="false" scriptlevel="0"> <mtext>Current Dividend Yield</mtext> </mstyle> </mrow> </mtd> <mtd> <mo>=</mo> </mtd> <mtd> <mrow class="MJX-TeXAtom-ORD"> <mfrac> <mstyle displaystyle="false" scriptlevel="0"> <mtext>Most Recent Full-Year Dividend</mtext> </mstyle> <mstyle displaystyle="false" scriptlevel="0"> <mtext>Current Share Price</mtext> </mstyle> </mfrac> </mrow> </mtd> </mtr> <mtr> <mtd /> <mtd> <mo>=</mo> </mtd> <mtd> <mrow class="MJX-TeXAtom-ORD"> <mfrac> <mrow> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="false" scriptlevel="0"> <mtext>Dividend payout ratio</mtext> </mstyle> </mrow> <mo>×</mo> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="false" scriptlevel="0"> <mtext>Most Recent Full-Year earnings per share</mtext> </mstyle> </mrow> </mrow> <mstyle displaystyle="false" scriptlevel="0"> <mtext>Current Share Price</mtext> </mstyle> </mfrac> </mrow> </mtd> </mtr> </mtable> </mrow> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle {\begin{array}{lcl}{\mbox{Current Dividend Yield}}&=&{\frac {\mbox{Most Recent Full-Year Dividend}}{\mbox{Current Share Price}}}\\&=&{\frac {{\mbox{Dividend payout ratio}}\times {\mbox{Most Recent Full-Year earnings per share}}}{\mbox{Current Share Price}}}\\\end{array}}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/554044a0e7eab3ab44480a22fcf4c4728bc80536" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -4.671ex; width:96.99ex; height:10.509ex;" alt="{\displaystyle {\begin{array}{lcl}{\mbox{Current Dividend Yield}}&=&{\frac {\mbox{Most Recent Full-Year Dividend}}{\mbox{Current Share Price}}}\\&=&{\frac {{\mbox{Dividend payout ratio}}\times {\mbox{Most Recent Full-Year earnings per share}}}{\mbox{Current Share Price}}}\\\end{array}}}"></span></dd></dl> <p>Conversely, the <a href="/wiki/P/E_ratio" class="mw-redirect" title="P/E ratio">P/E ratio</a> is the Price/Dividend ratio times the DPR. </p> <meta property="mw:PageProp/toc" /> <div class="mw-heading mw-heading2"><h2 id="Impact_of_buybacks">Impact of buybacks</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Dividend_payout_ratio&action=edit&section=1" title="Edit section: Impact of buybacks"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Some companies choose <a href="/wiki/Share_repurchase" title="Share repurchase">stock buybacks</a> as an alternative to dividends; in such cases this ratio becomes less meaningful. One way to adapt it using an augmented payout ratio:<sup id="cite_ref-1" class="reference"><a href="#cite_note-1"><span class="cite-bracket">[</span>1<span class="cite-bracket">]</span></a></sup> </p><p>Augmented Payout Ratio = (Dividends + Buybacks)/ Net Income for the same period </p> <div class="mw-heading mw-heading2"><h2 id="Historic_data">Historic data</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Dividend_payout_ratio&action=edit&section=2" title="Edit section: Historic data"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>The data for <b>S&P 500</b> is taken from a 2006 Eaton Vance post.<sup id="cite_ref-2" class="reference"><a href="#cite_note-2"><span class="cite-bracket">[</span>2<span class="cite-bracket">]</span></a></sup> The payout rate has gradually declined from 90% of <a href="/w/index.php?title=Operating_earnings&action=edit&redlink=1" class="new" title="Operating earnings (page does not exist)">operating earnings</a> in 1940s to about 30% in recent years. </p> <table class="wikitable"> <tbody><tr> <th>Decade</th> <th>Price %<br />Change</th> <th>Dividend<br />Contribution</th> <th>Total<br />Return</th> <th>Dividends as %<br />of Total Return</th> <th>Average<br />Payout </th></tr> <tr> <td>1930s</td> <td>-41.90%</td> <td>56.00%</td> <td>14.10%</td> <td>N/A</td> <td>90.10% </td></tr> <tr> <td>1940s</td> <td>34.8</td> <td>100.3</td> <td>135.1</td> <td>74.20%</td> <td>59.4 </td></tr> <tr> <td>1950s</td> <td>256.7</td> <td>180</td> <td>436.7</td> <td>41.2</td> <td>54.6 </td></tr> <tr> <td>1960s</td> <td>53.7</td> <td>54.2</td> <td>107.9</td> <td>50.2</td> <td>56 </td></tr> <tr> <td>1970s</td> <td>17.2</td> <td>59.1</td> <td>76.3</td> <td>77.5</td> <td>45.5 </td></tr> <tr> <td>1980s</td> <td>227.4</td> <td>143.1</td> <td>370.5</td> <td>38.6</td> <td>48.6 </td></tr> <tr> <td>1990s</td> <td>315.7</td> <td>95.5</td> <td>411.2</td> <td>23.2</td> <td>47.6 </td></tr> <tr> <td>2000s</td> <td>-15</td> <td>8.6</td> <td>-6.4</td> <td>N/A</td> <td>32.3 </td></tr> <tr> <td colspan="6"> </td></tr> <tr> <td>Average</td> <td>106.10%</td> <td>87.10%</td> <td>193.20%</td> <td>50.80%</td> <td>54.30% </td></tr></tbody></table> <p>For smaller, growth companies, the average payout ratio can be as low as 10%.<sup id="cite_ref-3" class="reference"><a href="#cite_note-3"><span class="cite-bracket">[</span>3<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading2"><h2 id="See_also">See also</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Dividend_payout_ratio&action=edit&section=3" title="Edit section: See also"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <ul><li><a href="/wiki/Dividend" title="Dividend">Dividend</a></li> <li><a href="/wiki/Dividend_yield" title="Dividend yield">Dividend yield</a></li> <li><a href="/wiki/Liquidating_dividend" class="mw-redirect" title="Liquidating dividend">Liquidating dividend</a></li> <li><a href="/wiki/Retention_ratio" title="Retention ratio">Retention ratio</a></li> <li><a href="/wiki/Special_dividend" title="Special dividend">Special dividend</a></li> <li><a href="/wiki/Sustainable_growth_rate" title="Sustainable growth rate">Sustainable growth rate</a></li></ul> <div class="mw-heading mw-heading2"><h2 id="References">References</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Dividend_payout_ratio&action=edit&section=4" title="Edit section: References"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <style data-mw-deduplicate="TemplateStyles:r1239543626">.mw-parser-output .reflist{margin-bottom:0.5em;list-style-type:decimal}@media screen{.mw-parser-output .reflist{font-size:90%}}.mw-parser-output .reflist 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href="http://pages.stern.nyu.edu/~adamodar/">http://pages.stern.nyu.edu/~adamodar/</a> Financial Ratios and Measures</span> </li> <li id="cite_note-2"><span class="mw-cite-backlink"><b><a href="#cite_ref-2">^</a></b></span> <span class="reference-text"><a rel="nofollow" class="external free" href="http://www.eatonvance.com/mutual_funds/dividend_story.php">http://www.eatonvance.com/mutual_funds/dividend_story.php</a> The Dividend Story <a rel="nofollow" class="external text" href="https://web.archive.org/web/20070127101437/http://www.eatonvance.com/mutual_funds/dividend_story.php">Archived</a> January 27, 2007, at the <a href="/wiki/Wayback_Machine" title="Wayback Machine">Wayback Machine</a></span> </li> <li id="cite_note-3"><span class="mw-cite-backlink"><b><a href="#cite_ref-3">^</a></b></span> <span class="reference-text"><a rel="nofollow" class="external free" href="http://www.barra.com/Research/Fundamentals.aspx">http://www.barra.com/Research/Fundamentals.aspx</a> S&P/Barra 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