Close this search box.

Table of Contents

Dividend Payout Ratio


The Dividend Payout Ratio is a financial metric that indicates the percentage of a company’s earnings that are paid out to shareholders as dividends. It’s calculated by dividing the total dividends paid by the net income of the company. It gives investors an understanding of how much profit is returned to shareholders versus how much is reinvested in the company.


The phonetic pronunciation of the keyword “Dividend Payout Ratio” is:Dividend – /ˈdɪvɪˌdɛnd/Payout – /ˈpeɪˌaʊt/Ratio – /ˈreɪʃioʊ/

Key Takeaways

  1. Definition: Dividend Payout Ratio is a financial metric that indicates the portion of earnings a company distributes to its shareholders in the form of dividends. The ratio is expressed as a percentage of the company’s net income.
  2. Interpretation: A lower Dividend Payout Ratio can imply that the company is reinvesting more profits back into the business for growth and expansion. Meanwhile, a higher ratio may signify that the company is primarily focused on returning value to shareholders. It’s an important tool for investors to understand a company’s dividend relative to its earning capacity.
  3. Variability: The Dividend Payout Ratio can vary significantly among different industries. Companies in growth phases or industries often tend to have lower ratios as they reinvest more earnings to fuel their growth, whereas companies in more mature industries with stable earnings might have higher ratios.


The Dividend Payout Ratio is an important measure in business and finance because it demonstrates the percentage of a company’s earnings that is being paid out to shareholders in the form of dividends. It is a crucial indicator of a company’s profitability and financial health. Investors often look at this ratio to understand how much profit the company is returning to its shareholders versus how much it is retaining for reinvestment or to pay off debt. Consequently, a higher payout ratio could indicate a more mature company that has fewer growth opportunities, while a lower ratio may suggest a growth company that is reinvesting more of its earnings back into the business. Hence, the Dividend Payout Ratio provides significant insights into a company’s financial strategy and growth potential.


The Dividend Payout Ratio serves a crucial purpose in finance and business. It’s used primarily to provide investment insight by showing the percentage of a company’s net income that is returned to shareholders in the form of dividends. Investors use this ratio to understand what proportion of income is being distributed and how much is retained for reinvestment or for maintaining a cash reserve. This can help them determine the sustainability of a company’s dividend payments and whether the company is more focused on returning profits to its shareholders or reinvesting back into the company.The ratio is also essential for company management, as they use it to make dividend payment decisions. A high dividend payout ratio could be attractive for investors seeking regular income, although it might also signal that the company does not have suitable projects for reinvestment. Conversely, a relatively low dividend payout ratio suggests that the company is reinvesting more into its growth and operation, which is typically favourable to new or growth-oriented investors as this could lead to capital gains in the future. Therefore, properly balancing the dividend payout ratio is key for a company’s strategic financial management.


1. Microsoft Corporation: In 2020, the tech giant Microsoft Corp. had annual dividends per share of $2.04 while the annual earnings per share for the same period were approximately $5.76. Therefore, the dividend payout ratio for Microsoft for that fiscal year was approximately 35.4%. This meant that Microsoft Corporation returned 35.4% of its earnings back to the shareholders and retained the rest for growth and business development. 2. Johnson & Johnson: For the fiscal year 2020, Johnson & Johnson declared dividends totaling $4.04 per share, with its annual earnings per share being roughly $5.51. This results in a dividend payout ratio of about 73.3%, indicating that Johnson & Johnson distributed approximately 73.3% of its profits to its shareholders in the form of dividends while the remaining percentage was likely kept for reinvestment or to cover potential losses. 3. Exxon Mobil Corporation: For 2020, Exxon Mobil Corporation distributed $3.48 per share to its shareholders whereas its earnings per share were, unfortunately, a negative $4.70, due to tumultuous market conditions caused by the global pandemic. This leads to a negative dividend payout ratio for the year due to the company experiencing losses, yet still choosing to distribute dividends, which was a clear signal to shareholders about its cash flow position and dividend sustainability.

Frequently Asked Questions(FAQ)

What is a Dividend Payout Ratio?
The Dividend Payout Ratio (DPR) is a financial metric that indicates the quantity of net income of a company that is distributed to its shareholders in the form of dividends.
How is the Dividend Payout Ratio calculated?
The Dividend Payout Ratio is calculated by dividing the annual dividends per share by the earnings per share (EPS) or by dividing the total dividends paid by the net income.
What does a high Dividend Payout Ratio indicate?
A high Dividend Payout Ratio might mean that the company is returning a large portion of its profits back to its investors. However, it can also suggest that the company doesn’t have many options for growth, or that it’s not reinvesting much in its own growth.
If a company has a low Dividend Payout Ratio, should I be worried?
Not necessarily. A lower ratio often means that a company is reinvesting more of its earnings back into the company for growth. That being said, a very low ratio can also suggest that the company may be struggling to maintain profitability.
Is a higher Dividend Payout Ratio always better?
Not always. While a higher ratio might be attractive for investors seeking current income, it could also indicate that the company is lacking opportunities for growth or reinvestment.
What is a good Dividend Payout Ratio?
It depends on the industry average and the company’s phase of growth. Mature companies tend to have higher ratios, while growth companies have lower ones. A ratio above 80% is generally considered high, and below 35%, low.
Can a Dividend Payout Ratio be over 100%?
Yes, a Dividend Payout Ratio can be over 100%, meaning the company is paying out more to shareholders than it’s making in profits. This is not sustainable in the long run as it could lead to future cuts in the dividend.
Is it bad for a company to have a negative Dividend Payout Ratio?
Yes, if a company has a negative Dividend Payout Ratio, it means that the company is losing money yet still paying dividends. This scenario is not sustainable in the long term and reflects poorly on management’s financial decisions.

Related Finance Terms

  • Dividends Per Share
  • Growth Rate
  • Net Income
  • Earnings Per Share
  • Dividend Yield

Sources for More Information

About Our Editorial Process

At Due, we are dedicated to providing simple money and retirement advice that can make a big impact in your life. Our team closely follows market shifts and deeply understands how to build REAL wealth. All of our articles undergo thorough editing and review by financial experts, ensuring you get reliable and credible money advice.

We partner with leading publications, such as Nasdaq, The Globe and Mail, Entrepreneur, and more, to provide insights on retirement, current markets, and more.

We also host a financial glossary of over 7000 money/investing terms to help you learn more about how to take control of your finances.

View our editorial process

About Our Journalists

Our journalists are not just trusted, certified financial advisers. They are experienced and leading influencers in the financial realm, trusted by millions to provide advice about money. We handpick the best of the best, so you get advice from real experts. Our goal is to educate and inform, NOT to be a ‘stock-picker’ or ‘market-caller.’ 

Why listen to what we have to say?

While Due does not know how to predict the market in the short-term, our team of experts DOES know how you can make smart financial decisions to plan for retirement in the long-term.

View our expert review board

About Due

Due makes it easier to retire on your terms. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month. Get started today.

Due Fact-Checking Standards and Processes

To ensure we’re putting out the highest content standards, we sought out the help of certified financial experts and accredited individuals to verify our advice. We also rely on them for the most up to date information and data to make sure our in-depth research has the facts right, for today… Not yesterday. Our financial expert review board allows our readers to not only trust the information they are reading but to act on it as well. Most of our authors are CFP (Certified Financial Planners) or CRPC (Chartered Retirement Planning Counselor) certified and all have college degrees. Learn more about annuities, retirement advice and take the correct steps towards financial freedom and knowing exactly where you stand today. Learn everything about our top-notch financial expert reviews below… Learn More