Glossarytaught in M3.07
Dividend payout ratio
Also called payout ratio, dividend payout.
Dividends divided by earnings. What share of profit is handed back rather than retained.
A company earning ₹12.30 a share and paying ₹9.00 pays out 73.2%.
How much to pay out depends entirely on what the company can earn on retained money. A business reinvesting at 25% should retain almost everything. One reinvesting at 8% against a 12% cost of capital should pay out almost everything, and the fact that it usually doesn't is the central problem of corporate capital allocation.
Any payout ratio above 100% is being funded from the balance sheet.
Read it against incremental return on capital.
Keep it only if you can earn on it.
Advertisement