Q:

What are three ways to calculate a dividend payout ratio?

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Quick Answer

Three ways to calculate a dividend payout ratio are by using net income, a retention ratio or a per-share basis. These figures all show how dividends paid out to stockholders relate to the reported net income of a company.

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Full Answer

The dividend payout ratio can help determine whether to invest in a company based on how much the company pays out in dividends to its shareholders and how much it decides to retain for its own use. The primary way to determine this is to divide the amount of paid dividends from a given time period by the net income reported by the company during that same time. An alternative formula is to report by a number between 0 and 1, by subtracting the retention ratio from 1. This is a simplified way to assign a numerical value that represents the percentage of net income paid as dividends. Lastly, a per-share value divides the number of dividends per share by the amount of reported earnings per share.

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