Business, Legal & Accounting Glossary
Dividends paid divided by company earnings over some period of time, expressed as a percentage.
The dividend payout ratio is the percentage of a company’s annual earnings paid out as cash dividends. Dividend payout ratios vary by industry and are affected by market conditions and tax law. Moreover, both a low dividend payout ratio and a high dividend payout ratio can have good or bad implications. A low dividend payout ratio can indicate a fast-growing company whose shareholders willingly forego cash dividends, because the company uses the extra money to generate higher returns and, in turn, a high stock price. But a low dividend payout ratio can also point to a company that simply can’t afford to pay dividends. Similarly, a high dividend payout ratio can indicate a blue-chip that pays high dividends and whose stock price is temporarily depressed. But a high dividend payout ratio can also point to a mature company with few growth opportunities. Certainly, other conclusions can be drawn from both a low dividend payout ratio and a high dividend payout ratio, and the dividend payout ratio should thus be considered with other financial indicators when picking stocks.
The dividend payout ratio would happen over time and we all knew that things were going to be different for us.
Like myself, investors who prefer to have capital growth often like to invest in companies with lower dividend payout ratio.
Given the recent decrease in oil prices the sustainability of dividends for many companies in the sector is questionable as their dividend payout ratios exceed cash flow.
payout ratio
clientele effect
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This glossary post was last updated: 29th October, 2021 | 0 Views.