Dividend Payout Ratio Calculator

Analyze dividend sustainability and safety for any stock.

Calculate Payout Ratio

Choose how you want to calculate
Total dividends paid per share per year
Annual earnings per share
Payout Ratio 50%
Safe
0-50%
Moderate
50-75%
High
75-100%
Danger
100%+
Retention Ratio50%
Safety RatingSafe
Room for GrowthHigh

Dividend Safety Analysis

Healthy Payout

A 50% payout ratio indicates the company retains half of earnings for growth while still rewarding shareholders.

Payout Ratio by Sector

What's considered "safe" varies by industry:

Technology
20-40%
Healthcare
30-50%
Consumer Staples
50-70%
Utilities
60-80%
REITs
80-100%+

REITs are required to pay 90%+ of taxable income as dividends.

Phin Smith
CREATED BY Phin Smith UPDATED
Based on 3 sources
Reviewed by Expert
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Table of Contents

Understanding Payout Ratio

The payout ratio shows what percentage of earnings a company pays as dividends. It's crucial for assessing dividend sustainability.

  1. Low payout (under 50%) - Company retains most earnings for growth. Dividend likely very safe with room to increase.
  2. Moderate payout (50-75%) - Balanced approach. Dividend usually sustainable but less room for increases.
  3. High payout (75-100%) - Most earnings go to dividends. Less safe; vulnerable to earnings decline.
  4. Over 100% - Company paying more than it earns. Unsustainable long-term; dividend cut likely.

Payout Ratio Formulas

Payout Ratio = (Dividends Per Share ÷ EPS) × 100

Alternative using Free Cash Flow (more conservative):

FCF Payout = (Total Dividends ÷ Free Cash Flow) × 100

Retention Ratio = 100% - Payout Ratio (what's kept for reinvestment)

Frequently Asked Questions

Which is better: EPS or FCF payout ratio?

FCF payout ratio is generally more reliable because free cash flow represents actual cash available, while EPS includes non-cash items. A company can have positive EPS but negative FCF, making dividends unsustainable.

Why do REITs have payout ratios over 90%?

REITs are legally required to distribute at least 90% of taxable income to shareholders to maintain their tax-advantaged status. This is why high payout ratios are normal for REITs and don't indicate danger.

Can a payout ratio be negative?

Yes, if a company has negative earnings but still pays dividends. This means they're using cash reserves or debt to fund dividends - a major red flag for sustainability.

What causes payout ratios to spike temporarily?

One-time earnings drops (write-offs, restructuring charges) can spike payout ratios without indicating dividend risk. Look at 3-5 year average payout ratios for a clearer picture.

How do I find EPS and dividend data?

Check company earnings reports, Yahoo Finance, or your brokerage. Look for "trailing twelve months" (TTM) data for the most current picture. Annual reports also show historical payout trends.

Sources

  1. Investopedia - Dividend Payout Ratio

    Comprehensive guide to understanding and calculating payout ratios.

  2. SEC - REIT Requirements

    Official SEC information on REIT distribution requirements.

  3. Motley Fool - Using Payout Ratios

    Practical guide to analyzing dividend safety using payout ratios.