# Dividend Payout Ratio Calculator And Formula

The dividend payout ratio is one of the most important financial ratios that can be used to pick stocks for your portfolio and understand a company’s dividend policy. The dividend payout ratio calculator shows you what a company paid in dividends compared to the total revenue.

Many companies nowadays try to achieve capital appreciation by investing the profits generated in other projects to bring more profits. The dividend payout ratio for these companies is lower than companies choosing to return profits to shareholders.

## Dividend Payout Ratio Formula

You can find the dividend payout ratio with two different (but similar) formulas. The first formula is:

Dividend Payout Ratio = Total Dividends Paid / Net Income Available to the shareholders

The second formula works on a per-share basis, and it is as follows:

Dividend Payout Ratio = Dividend Per Share / Earnings Per Share

Of course, both formulas will give you the same number.

## Formula Analysis

As explained above, the dividend payout ratio shows the dividend that a company distributes compared to the net income generated during the year.

### High and Low Ratios

So what does a high dividend payout ratio mean? It means a company chooses to distribute a large share of income to shareholders instead of reinvesting. Of course, this can be both good and bad. It’s good because the investors get a return on the funds they have invested. And it’s bad because it means a company might be unable to find profitable projects or has limited opportunities.

Dividends used to be the standard form of profits distribution, but companies also use share repurchases nowadays. Therefore, when the dividend payout ratio is calculated and appears to be low, it might be the case that a company prefers to buy back its shares instead of paying out dividends.

As noted above, it’s not uncommon for companies to choose not to pay dividends (for many years on specific occasions). Apple and Microsoft are two good examples. Apple paid dividends in 2012 but otherwise hadn’t for seven years. Microsoft paid a dividend in 2003, its first since going public in 1986. However, both companies had an impressive capital appreciation, so investors had a decent return on their investment.