Understanding Payout Ratio

Payout ratio is the percentage of a company's earnings paid out as dividends. It measures how much of profits go to shareholders versus being reinvested.

The Formula

Payout Ratio = (Dividends per Share ÷ Earnings per Share) × 100

What Is a Safe Payout Ratio?

<50%: Very safe - plenty of room for growth and downturns
50-70%: Moderate - healthy for mature companies
70-90%: Elevated - less room for error
>90%: High risk - dividend may be cut if earnings drop

Exceptions

REITs and MLPs often have payout ratios above 90% by design - they're required to distribute most income. For these, check FCF payout coverage instead.

How Dividend.Direct Uses It

Payout ratio is a key component of our Quality Score. Stocks with ratios above 90% receive warning flags and lower scores.

See It in Action

Payout Ratio on Stock Page

The Payout Ratio is displayed alongside yield and growth metrics to provide context on dividend safety.

Understanding Payout Ratio: Is the Dividend Safe?