How Do You Spell DIVIDEND PAYOUT RATIO?

Pronunciation: [dˈɪvɪdənd pˈe͡ɪa͡ʊt ɹˈe͡ɪʃɪˌə͡ʊ] (IPA)

The dividend payout ratio is spelled /ˈdɪvɪdɛnd ˈpeɪaʊt ˈreɪʃioʊ/. The first syllable, "divi," is pronounced with a short "i" sound, like "divvy." The second syllable, "dend," is pronounced with a short "e" sound, like "den." The third syllable, "pay" is pronounced with a long "a" sound, like "pay," and the fourth syllable, "out," is pronounced with a short "a" sound, like "owt." The final syllable, "ratio," is pronounced with a long "a" sound, like "ray-shee-oh." The dividend payout ratio refers to the proportion of earnings that a company distributes to its shareholders as dividends.

Meaning and Definition
Basic Check Advanced Check

DIVIDEND PAYOUT RATIO Meaning and Definition

  1. The dividend payout ratio is a financial metric used to measure the proportion of earnings or profits that a company distributes to its shareholders in the form of dividends. It is a crucial indicator of a company's ability to reward its shareholders and also reflects the company's dividend policy.

    The dividend payout ratio is calculated by dividing the total amount of dividends paid out by a company in a specific time period by its net earnings or profits for the same period. The result is typically expressed as a percentage. For example, if a company pays $1,000,000 in dividends and has net earnings of $2,000,000, the dividend payout ratio would be 50% ($1,000,000 divided by $2,000,000).

    This ratio is significant for investors as it signifies the percentage of earnings that are being shared with them. A higher dividend payout ratio indicates that the company is distributing a larger portion of its earnings as dividends. However, a very high ratio may also indicate that the company is not reinvesting sufficient profits into the business for growth and expansion. Conversely, a lower dividend payout ratio may suggest that the company is retaining a larger portion of profits to reinvest in its operations.

    Investors often use the dividend payout ratio as a tool to assess a company's dividend sustainability and growth potential. It is crucial to compare this ratio across similar companies in the industry, as different sectors may have varying dividend payout norms.