The formula
How to calculate dividend payout ratio
The payout ratio is the slice of profit handed to shareholders rather than kept in the business. It is the clearest single indicator of whether a dividend has room to grow, room to survive, or neither.
The retention ratio is the mirror image, and it matters more than it looks: retained earnings are what fund growth without new borrowing or new shares. A company paying out everything has to raise capital externally to expand.
What to enter:
- Dividend per share
- Earnings per share
Everything recalculates as you type, and the numbers in the address bar update with it, so a link to this page carries your figures with it.
Worked example
Here is the calculation with the starting values:
- Dividend per share: 1.8
- Earnings per share: 3
That gives:
- Payout ratio: 60 %
- Retention ratio: 40 %
- Dividend cover: 1.67 ×
Reading the result
Mature businesses commonly sit between 40% and 60%. Utilities and tobacco run higher because their earnings are predictable; growth companies run near zero because reinvestment beats distribution. Above 100% the company is paying out more than it earned, which is only sustainable from reserves and only briefly.
Where this goes wrong. Earnings are an accounting figure and can be dragged around by one-off write-downs. A payout ratio of 250% caused by a single impairment is not the same as one caused by overpaying, so check the cash-flow-based version too.
It is safer, not better. A low ratio means the dividend is well protected and can grow, but it also means less cash in your hand — the right level depends on whether the company can earn a good return on what it keeps.
Anything consistently above 100% for a business without unusual accounting. Watch for a ratio that climbs year after year: that is a dividend growing faster than earnings, which ends in a cut.
It returns payout ratio. With 1.8 dividend per share and 3 earnings per share, that comes to 60 %. Change any field and the figure moves with it.