Dividend Payout Ratio Calculator
The dividend payout ratio measures what fraction of a company's earnings is returned to shareholders as dividends. It is a key metric for evaluating dividend sustainability and the balance between income distribution and retained growth capital. A company paying out 80% of earnings has little room to absorb earnings declines without cutting its dividend. Conversely, a company paying out only 20% has substantial cushion and room for future dividend increases. This calculator accepts either per-share values or total company values. You can also check coverage using free cash flow instead of net income for a more conservative measure.
Payout ratio formula
Payout ratio = dividends per share / earnings per share
Retention ratio = 1 - payout ratio
(Or: total dividends / net income)
Both the per-share and total-company versions yield the same result as long as the same shares outstanding figure is used throughout. Use net income (not operating income) in the denominator as reported in the income statement.
Evaluating dividend sustainability
- A payout ratio below 60% provides a cushion if earnings temporarily decline.
- REITs are required by law to distribute at least 90% of taxable income, so high ratios are normal for the sector.
- Cash flow payout ratio (dividends / free cash flow) is more conservative and preferred for capital-intensive companies.
- A rising payout ratio over several years may indicate that dividend growth is outpacing earnings growth, a potential warning sign.
- Dividend cuts are typically negative for stock prices; companies with low payout ratios are more likely to maintain dividends during downturns.
Frequently asked questions
What is the dividend payout ratio?
The dividend payout ratio is the proportion of net income paid to shareholders as dividends. A payout ratio of 40% means the company distributes 40% of earnings and retains 60% for reinvestment. It is calculated as dividends per share divided by earnings per share, or as total dividends divided by net income.
What is a sustainable payout ratio?
A payout ratio below 60% is generally considered sustainable for most companies. Utilities and REITs often sustain higher ratios (60 to 90%) due to stable cash flows. A payout ratio above 100% means the company is paying more in dividends than it earns, which is unsustainable without external financing.
What is the retention ratio?
The retention ratio (also called the plowback ratio) is 1 minus the payout ratio. It represents the proportion of earnings retained for reinvestment in the business. A high retention ratio suggests growth-oriented companies reinvesting in operations, R&D, or acquisitions.
How does the payout ratio relate to dividend growth?
Companies with low payout ratios have more room to grow dividends in the future. The sustainable dividend growth rate (using the Gordon Growth Model) is approximately: retention ratio * return on equity. A company retaining 60% and earning 15% ROE can sustainably grow dividends at about 9% per year.
Where can I find earnings per share and dividends per share?
EPS and DPS are reported in annual and quarterly reports (10-K and 10-Q) filed with the SEC via EDGAR. Dividends declared per share are also reported on Form 8-K when dividends are declared by the board.
Official sources
- SEC EDGAR: Annual and Quarterly Reports (10-K, 10-Q).
- IRS: Topic 404 - Dividends.
Reviewed by the CalculatorHub team, edited by James Graham, 15 June 2026. See our methodology.