The payout ratio, sometimes called the dividend payout ratio, measures how much of a company's income gets paid out in dividends. The payout ratio gives an indication of the maturity of the company: more mature companies typically have fewer expansion opportunities so they pay out a higher percentage of their earnings than a new company that has a plethora of growth opportunities. In addition, you can use the payout ratio to help you decide if a stock is right for your portfolio.
1. Look up the company's earnings per share and dividends per share on the income statement.
2. Divide the dividends per share by the earnings per share to find the dividend payout ration as a decimal. For example, if the company has $6.50 in earnings per share and pays dividends of $2 per share, divide $2 by $6.50 to get 0.3077.
3. Multiply the payout ratio as a decimal by 100 to find the payout ratio expressed as a decimal. In this example, multiply 0.3077 by 100 to find the company pays out 30.77 percent of its earnings per share in dividends.
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