Dividend Payout Ratio

You compute the DPR by dividing the annual dividends per share by the Earnings Per Share.

Yearly Dividend per Share
= ------------------------------------
Earnings per Share

Indicate the ratio of earnings that are used to give dividends to shareholders.

For example, if a company paid out RS 100 per share in yearly dividends and had RS 300 in EPS, the DPR would be 33%. (100 / 300 = 33%)

The actual question is whether 33% is good or bad?, that is subject to explanation. Rising companies will normally retain more profits to fund growth and give lower or no dividends.

Companies that pay higher dividends may be in mature industries where there is small room for development and paying higher dividends is the best use of.

A decline in dividends paid is looked poorly upon by investors, and the stock price generally depreciates as investors seek other dividend paying stocks.

1 comment:

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