Dividend Payoutshows a company's dividend in relation to its earnings per share.
Dividend Payout= Dividend/Earnings Per Share
Shows the percentage amount of the company's profit that goes to shareholders. Often combined with Direct Returns to see if the dividend is sustainable over time.
Normal Dividend Payoutis usually between 20-60%. The company retains part of the profit to grow and invest.
If the Dividend Payout is over 100%, this is a big warning sign. The company gives more money in dividends than it earns in profits. This is not sustainable over time. Sometimes, it is because the company does not want to lower its dividend track record, or because the company has a large fund that they want to distribute. Whatever the reason, you as an investor need to identify the cause.
Things to keep in mind
- Normal Dividend Payout is usually between 20-60%.
- A high value means that the company distributes a large part of its profit. It is important to understand why this is happening.