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The dividend payout ratio shows what share of a company's net income is distributed to shareholders as dividends, versus retained and reinvested back into the business.
How it works
Enter dividends paid and net income, and the calculator applies Payout Ratio = (Dividends Paid ÷ Net Income) × 100 — and also reports the retention ratio (100% minus the payout ratio).
- Enter dividends paid ($).
- Enter net income ($).
- Click Calculate to see your results.
Examples
A balanced payout policy
A company paying $30,000 of dividends from $100,000 of net income has a 30% payout ratio — meaning 70% of profit (the retention ratio) is reinvested back into the business.
Who should use it
- Assessing a company's dividend sustainability and reinvestment strategy.
- Income-focused investment analysis.
Industry applications
- Investment analysis and equity research
- Corporate finance and dividend policy analysis
Advantages
- Also reports the retention ratio directly, showing the reinvestment side of the same decision.
- Simple, direct calculation from figures already on financial statements.
Limitations
- A single period's ratio can be skewed by an unusually high or low net income year relative to a stable dividend policy.
Common mistakes to avoid
- Confusing payout ratio with dividend yield — one compares to earnings, the other to share price.
- Assuming a low payout ratio is automatically bad — many growth companies deliberately retain nearly all earnings to reinvest.
Best practices
- Consider a company's growth stage before judging its payout ratio — mature and growth companies have very different typical payout patterns.
- Watch for a payout ratio persistently above 100% over multiple periods — that's a sustainability concern.
Tips
- Look at payout ratio trends over several years rather than one period — a temporarily high ratio during a weak-earnings year isn't necessarily a red flag on its own.