Payout Ratio
What percent of earnings a company pays out as dividends — gauges dividend capacity and sustainability.
In plain terms
If a company earns $100M and pays out $30M in dividends, the payout ratio is 30%.
It shows "how much of what it earned it returns to shareholders versus how much it keeps in the business to reinvest."
What it tells you
It shows whether the current dividend can comfortably continue.
A low payout ratio leaves room to raise the dividend; a very high one (e.g. near or above 100%) means almost all (or more than) earnings are being paid out, raising the risk of a dividend cut.
Formula
Payout ratio = total dividends ÷ net income × 100 (or dividend per share ÷ earnings per share (EPS))
What high or low means
Low means more dividend capacity and room to reinvest; high means active shareholder returns but you should check sustainability.
Above 100% means paying out more than that year's earnings, which warrants particular caution.
The payout ratio is based on accounting earnings (net income), so a one-off earnings spike distorts it. Actual dividend capacity is more accurately seen relative to free cash flow (FCF) (the context engine flags cases where "dividends exceed FCF").
Growth companies often deliberately pay no dividend (payout ratio of 0) and reinvest everything. A payout ratio of 0 does not mean a bad company.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see Payout and other financial metrics alongside the sector average.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.