Financial Calculators

## dividend payout ratio calculator

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Dividend payout ratio
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 ◦How to calculate the dividend payout ratio? ◦What is a good dividend payout ratio? ◦Payout Ratio real example: Verizon ◦What is a bad dividend payout ratio? ◦Conclusion
Dividend payout ratio is a financial metric used by investors to evaluate the sustainability of a company's dividend payments. It measures the proportion of a company's earnings that are paid out to shareholders as dividends. The dividend payout ratio calculator is a quick and easy tool that can help investors determine the dividend payout ratio of a particular stock or company.

## How to calculate the dividend payout ratio?

The dividend payout ratio is calculated by dividing the total dividends paid out by a company by its net income for a particular period. The result is expressed as a percentage.
Dividend Payout Ratio = Total Dividends / Net Income
For example, if a company has a net income of \$1 million and pays out \$250,000 in dividends, the dividend payout ratio would be 25%.

## What is a good dividend payout ratio?

A good dividend payout ratio depends on the industry and the company's stage of growth. Companies in mature industries with stable earnings tend to have higher dividend payout ratios. Conversely, companies in growth industries with high capital requirements tend to have lower dividend payout ratios as they reinvest earnings back into the business.
A dividend payout ratio of 30% to 50% is generally considered a healthy range for most companies. This indicates that the company is paying out a reasonable proportion of its earnings to shareholders while retaining enough to reinvest in the business for future growth.

## Payout Ratio real example: Verizon

Verizon Communications Inc. is a leading American telecommunications company that provides wireless and wireline communication services to individuals and businesses. As of 2021, Verizon had a dividend payout ratio of 52.3%, which is within the healthy range for most companies.
To calculate Verizon's dividend payout ratio, we can use the following formula:
Dividend Payout Ratio = Total Dividends / Net Income
In 2020, Verizon had a net income of \$19.2 billion and paid out \$10 billion in dividends to shareholders. Using the formula, we can calculate Verizon's dividend payout ratio as follows:
Dividend Payout Ratio = \$10 billion / \$19.2 billion = 52.3%
Verizon's dividend payout ratio indicates that the company is paying out a significant portion of its earnings to shareholders while retaining enough to invest in the business for future growth.

## What is a bad dividend payout ratio?

A bad dividend payout ratio depends on the industry and the specific circumstances of the company. Generally, a very high dividend payout ratio may indicate that the company is paying out more than it can afford, leading to potential financial problems in the future. Conversely, a very low dividend payout ratio may suggest that the company is not sharing enough of its profits with shareholders.
One example of a company with a high dividend payout ratio that could be considered bad is Frontier Communications Corporation. Frontier is a telecommunications company that provides internet, telephone, and television services to customers in the United States. In 2017, Frontier had a dividend payout ratio of 428%, which indicates that it paid out more in dividends than it earned in net income. This high dividend payout ratio was unsustainable and led to a significant decline in Frontier's stock price and financial performance in the following years.
On the other hand, an example of a company with a low dividend payout ratio that could be considered bad is General Electric Company (GE). GE is a multinational conglomerate that operates in various industries, including aviation, healthcare, and renewable energy. In 2018, GE had a dividend payout ratio of 0%, as it had suspended its dividend payments to shareholders due to financial difficulties. This low dividend payout ratio was not favorable for investors who rely on regular dividend income and also reflected the company's poor financial health at the time.
It is important to note that a bad dividend payout ratio is not necessarily an indicator of a company's overall financial health. Other factors such as debt levels, revenue growth, and industry trends should also be considered when evaluating a company's potential for long-term investment.

## Conclusion

The dividend payout ratio is an important financial metric that can provide valuable insights into a company's financial health and dividend sustainability. The dividend payout ratio calculator is a simple and effective tool that can help investors evaluate a company's dividend payout ratio and make informed investment decisions. By using this calculator, investors can easily determine whether a company is paying out a reasonable proportion of its earnings to shareholders and whether its dividend payments are sustainable over time.
Article author
John Cruz
John is a PhD student with a passion to mathematics and education. In his freetime John likes to go hiking and bicycling.
###### Dividend Payout Ratio Calculator English
Published: Sun Mar 12 2023
In category Financial calculators

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