Finance glossary
Payout Ratio
Definition
The share of earnings a company pays out as dividends.
The payout ratio equals dividends divided by net income, showing how much profit is returned to shareholders versus reinvested. A low ratio leaves room for growth and dividend hikes; a ratio above 100 percent means a company is paying more than it earns, which is unsustainable.
In a sentence
A payout ratio above 100% warned that the company was paying out more in dividends than it earned.
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