Dividend Payout

The dividend payout ratio measures the percentage of a company's net income that is returned to shareholders in the form of dividends. 

          Dividend Payout =                       Ordinary Dividend       

                                                        Pat - Prefereance Dividend

The Dividend Payout Ratio is a model for Cash Flow Measurement used by investors to determine if a company is generating a sufficient level of cash flow to assure a continued stream of dividends to them. It is also a measurement of the amount of current net income paid out in dividends rather than retained by the business.

The Dividend Payout Ratio Formula (Cash Flow Measurement Formula) is relatively straightforward: Divide total annual dividend payments by annual Net Income plus Non-cash Expenses minus Non-cash Sales.

Calculating the Dividend Payout Ratio for one year provides a very unreliable indication only. A better approach is to run a trend line on the ratio for several years to see if a general pattern of decline or increase emerges.

This ratio is useful in projecting the growth of company as well. Its inverse, the Retention Ratio (the amount not paid out to shareholders in the form of dividends), can help project a company’s growth.