How Do You Calculate The Dividend Payout Ratio?
In investing, the dividend payout ratio measures what percentage of a company’s earnings is paid to shareholders via dividends. Here’s how to calculate it. Step 1 The dividend payout ratio is calculated with a simple equation:Yearly dividend per share divided by earnings per share.You can find this information in a company’s annual report. Step 2 For this example, we’ll use Microsoft’s 2007 annual report. The company lists its yearly dividend per share as $0.40 and its earnings per share as $1.44. So the math looks like this:$0.40 / $1.44= 0.2778.Move the decimal point two places to the right, and you get 27%, meaning Microsoft paid out 27% of its earnings per share in the form of dividends in 2007. Step 3 Estimates on an ideal dividend payout ratio vary widely, but in general, a ratio of 50% or more is considered high. This amount means investors receive a large portion of earnings per share in the form of dividends, while leaving the company with enough money to grow its business as
