This dividend payout ratio calculator can help you measure the percentage of net income that is distributed by a company to its shareholders in the form of dividends during the year. Below the tool you can find the 2 formulas used.
How does this dividend payout ratio calculator work?
The dividend payout ratio refers to the percentage of earnings received by dividing the in the form of dividends thus most investors analyze this indicator before deciding whether to invest in a certain company or not.
This dividend payout ratio calculator can help you determine this financial indicator by two different methods as explained here:
In the 1st tab (Method 1) you can calculate the dividend payout ratio (DPR) by dividing the yearly dividend per share received within the previous year by the figure of the earnings per share.
DPR 1 = Yearly dividend per share / Earnings per share
By 2nd tab (Method 2) you can estimate the DPR by an alternative formula that requires dividing the total dividends paid within the previous period by the total net income registered.
DPR 2 = Total Dividends Paid / Total Net Income
Independent on the method used the variables taken into account can be found in the publicly released financial annual investor’s reports.
The interpretation of the dividend payout ratio level
The dividend payout ratio indicates at which extent a company pays dividends from its earnings and how much from the profits generated previously are used for reinvestment or business development plans.
Thus, a high dividend payout ratio is an incentive for investors who seek short term earnings, while a lower dividend payout ratio in comparison to the market average may convince investors who seek long term earnings since this is a signal that the company in question reinvests a higher portion of its earnings for development rather than paying dividends.
Usually investors compare a company’s dividend payout ratio with the market/industry average that entity operates in, however please note that this ratio varies from one case to another on many factors such as the company stability or the implementation stage of a specific development plan.
In regard of the effects a reduction in dividends paid has it has been proved that such a reduction is perceived negatively, thus whenever occurs it may lead in the depreciation of the stock prices, while a stable dividend payout ratio demonstrates the company has a stable historical policy towards dividends paid.
Example of DPR calculations
Company X reports $10/Yearly dividend per share paid and $25/Earnings per share, then its DPR = 40% (0.4).
Company Y states that for the previous year has paid in dividends $100,000 and has registered a total Net income of $500,000, then its DPR = 20% (0.2).28 May, 2015