Dividend Payout Ratio (DPR)
Dividend Payout Ratio (DPR) is the ratio which is used to measure the percentage of net income which distributed to the shareholder during the year in the form of the dividend. In other words, this ratio shows that which percentage of profit keep for company’s operation and which percentage of profit given to shareholders of the company.
The investor uses the dividend payout ratio first of all to analyze any company. because from this ratio analysts know that which portion of the company pays to its shareholder from net income by the company. e.g Apple company which formed in 1972 and it give a dividend to its shareholders in 2012.
Dividend payout formula can be calculated by dividing the total dividend by the net income.
Dividend payout ratio= Total dividend/net income
From the above formula, we can get the overall dividend ratio. From the financial statement, we can get the value of total dividend and net income.
When we divide the dividend per share by the earning per share then we get dividend payout ratio from this also.
Analysis of dividend payout ratio is important. As compare to high or low ratio DPR consistent trend of this ratio is more important. If the ratio of the company is high for 1 year then it does not sign of the success for a company because analyst takes this ratio sustainable trend for years.
SO the company with downtrend ratio is not good for analysts. If the ratio of company decrease for five years then the company is not able to pay the high dividend it indicates that the performance of the operations of the company is not good.
As compared to new companies mature companies have a high dividend payout ratio.
Here we take the example of a restaurant which has an income of $10,000 for 1 year on the financial statement. Dividend pays to the shareholder during the year is $ 3,000. So the dividend payout ratio for the restaurant will be
Dividend payout ratio = 3,000/10,000
So 30% from net income pay from restaurant to its shareholder.
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