What does Payout Ratio % mean?
The payout ratio measures the amount of earnings paid out in dividends to shareholders. It is calculated as DPS / EPS. Investors can use the payout ratio to determine what companies are doing with their earnings. Investors seeking high current income and limited capital growth prefer companies with high Dividend payout ratio. However investors seeking capital growth may prefer lower payout ratio if capital gains are taxed at a lower rate. High growth firms in early life generally have low or zero payout ratios. As they mature, they tend to return more of the earnings back to investors. The inverse of the payout ratio is Dividend Cover, which is a more popular metric in the UK.