A Dividend Payout ratio is a simple calculation that investors can use to measure how much of a company's earnings are being paid out to shareholders in the form of dividends. The dividend payout ratio is calculated by dividing the total amount of dividends paid out to shareholders during a given period by the net income of the company during that same period.The higher the dividend payout ratio, the more money a company is paying out to its shareholders in dividends. This can be interpreted as either good or bad news, depending on whether you are an investor in search of current income or someone who believes that retained earnings offer greater long-term potential for capital appreciation.A low or declining dividend payout ratio may be indicative of management's belief that there are better uses for its cash flow than immediate payouts to shareholders. This could signal future growth opportunities and/or increased profitability down the road. Conversely, if a high dividend payout ratio persists over time it may indicate that management has run out of profitable investment opportunities and/or is not confident about future prospects.
