Answer first
What this calculator tells you
Calculate the share of earnings paid out as dividends and the share kept in the business. Check whether a dividend is covered by earnings before you rely on it for income. Formula: Payout ratio = dividends per share ÷ earnings per share × 100; retention ratio = 100 − payout ratio. At the worked-example inputs, the dividend payout ratio is 40.0%. Holding every other input steady, moving dividends per share (annual) from $1.92 to $2.88 moves the result from 32.0% to 48.0%.
Transparent method
The formula
Check whether a dividend is covered by earnings before you rely on it for income.
Worked example
Example inputs
How to interpret the result
The payout ratio shows how much of each profit dollar goes out the door as dividends. At $2.40 paid from $6.00 earned, the company sends 40 percent to shareholders and keeps 60 percent. A dividend close to all of earnings leaves no cushion, so one weak year can force a cut, while a low ratio leaves room to grow the payment.
At the worked-example inputs the dividend payout ratio is 40.0%. It rises with dividends per share (annual) and falls as earnings per share (annual) increases.
Investment returns are uncertain; taxes, fees, volatility and cash-flow timing can materially change results.
Before you rely on it
What to check
Look at several years of payout, not one. A ratio that jumped because earnings dipped is a different story from one that has held steady.
The common error
Where people go wrong with dividend payout ratio calculator
Reading a high yield as safety. A yield can be high because the price fell, and a payout ratio above 100 percent means the dividend is being paid from something other than profit.
Sensitivity evidence
How dividends per share (annual) changes the dividend payout ratio
Holding every other input at the worked-example value, moving dividends per share (annual) from $1.92 to $2.88 moves the dividend payout ratio from 32.0% to 48.0%: a spread of 16.0%, or 40% of the worked-example result.
| Dividends per share (annual) | Dividend payout ratio | Retention ratio |
|---|---|---|
| $1.92 | 32.0% | 68.0% |
| $2.16 | 36.0% | 64.0% |
| $2.40worked example | 40.0% | 60.0% |
| $2.64 | 44.0% | 56.0% |
| $2.88 | 48.0% | 52.0% |
Every input, tested
Which input moves the dividend payout ratio most
Of the 2 inputs, earnings per share (annual) moves the dividend payout ratio most (8.1% across the range tested) and dividends per share (annual) moves it least (8.0%).
| Input | Tested from | To | Dividend payout ratio at each end | Swing |
|---|---|---|---|---|
| Earnings per share (annual) | $5.40 | $6.60 | 44.4% to 36.4% | 8.1% (20%) |
| Dividends per share (annual) | $2.16 | $2.64 | 36.0% to 44.0% | 8.0% (20%) |
Two variables at once
Dividend payout ratio by dividends per share (annual) and earnings per share (annual)
Across the grid the dividend payout ratio runs from 26.7% to 60.0%. Moving dividends per share (annual) from $1.92 to $2.88 shifts it by 16.0% at the middle column, and moving earnings per share (annual) from $4.80 to $7.20 shifts it by 16.7% at the middle row, so earnings per share (annual) is the bigger lever here.
| Dividends per share (annual) \ Earnings per share (annual) | $4.80 | $6.00 | $7.20 |
|---|---|---|---|
| $1.92 | 40.0% | 32.0% | 26.7% |
| $2.16 | 45.0% | 36.0% | 30.0% |
| $2.40 | 50.0% | 40.0% | 33.3% |
| $2.64 | 55.0% | 44.0% | 36.7% |
| $2.88 | 60.0% | 48.0% | 40.0% |
The highlighted cell is the worked example: 40.0%.
Step by step
The worked example, input by input
| Input | Value used | What it means |
|---|---|---|
| Dividends per share (annual) | $2.40 | Enter the dividends per share (annual) used in this calculation. |
| Earnings per share (annual) | $6.00 | Enter the earnings per share (annual) used in this calculation. |
| Dividend payout ratio | 40.0% | |
| Retention ratio | 60.0% | |
Inputs, definitions and assumptions
Dividends per share (annual)
Enter the dividends per share (annual) used in this calculation. The prefilled worked-example value is $2.40.
Earnings per share (annual)
Enter the earnings per share (annual) used in this calculation. The prefilled worked-example value is $6.00.
How to use this calculator
- 1Verify the inputs. Gather dividends per share (annual) and earnings per share (annual) from your own documents; the prefilled values are examples.
- 2Save a baseline. The worked example puts the dividend payout ratio at 40.0%. Store your own version of it as Scenario A.
- 3Test one change. Start with earnings per share (annual), the input with the biggest effect here: moving earnings per share (annual) from $5.40 to $6.60 takes the dividend payout ratio from 44.4% to 36.4%, a swing of 20% of the worked-example figure.
- 4Check the extremes. At half the example earnings per share (annual) ($3.00) the dividend payout ratio is 80.0%; at double ($12) it is 20.0%.
People also ask
Frequently asked questions
How do you calculate dividend payout ratio?
Payout ratio = dividends per share ÷ earnings per share × 100; retention ratio = 100 − payout ratio. Enter dividends per share (annual) in dollars and earnings per share (annual) in dollars. At the worked-example inputs the dividend payout ratio is 40.0%.
What does the dividend payout ratio result mean?
Check whether a dividend is covered by earnings before you rely on it for income. At the worked-example inputs the dividend payout ratio is 40.0%. It rises with dividends per share (annual) and falls as earnings per share (annual) increases.
How much does dividends per share (annual) change the dividend payout ratio?
Holding every other input at the worked-example value, moving dividends per share (annual) from $1.92 to $2.88 moves the dividend payout ratio from 32.0% to 48.0%, a spread of 16.0%.
What are the limits of this dividend payout ratio calculator?
Investment returns are uncertain; taxes, fees, volatility and cash-flow timing can materially change results. The tables on this page test dividends per share (annual) only from $1.92 to $2.88; a value outside that range is not tabulated here.
Which input moves the dividend payout ratio most in the dividend payout ratio calculator?
Ranked by how far each moves the dividend payout ratio across the range tested: earnings per share (annual) (8.1%, 20%) and dividends per share (annual) (8.0%, 20%).
If I double earnings per share (annual) in the dividend payout ratio calculator, does the dividend payout ratio double?
Doubling it from $6.00 to $12 takes the dividend payout ratio from 40.0% to 20.0%, which is 0.50 times the worked-example figure. So it falls instead of rising. Halving it to $3.00 gives 80.0%.
How much does earnings per share (annual) matter in the dividend payout ratio calculator?
The worked example uses $6.00. With the other inputs left at the worked example, moving earnings per share (annual) from $5.40 to $6.60 takes the dividend payout ratio from 44.4% to 36.4%, a swing of 20% of the worked-example figure.
Which inputs change the retention ratio in the dividend payout ratio calculator?
At the worked-example inputs it is 60.0%. Dividends per share (annual) takes it from 64.0% to 56.0% and earnings per share (annual) takes it from 55.6% to 63.6%.
What is a realistic long-term return to assume?
Any single figure is a guess, which is why it should be treated as a range. Run a conservative, moderate and optimistic case and look at which decisions change. If a plan only works at the optimistic figure, the finding is that the plan is fragile, not that the figure is wrong.
Sources and evidence
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