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 The Dividend Payout Ratio
is a model for Cash Flow Measurement used by investors to
determine if a company is generating a sufficient level of cash flow to
assure a continued stream of dividends to them. It is also a
measurement of the amount of current net income paid out in dividends
rather than retained by the business.
The Dividend Payout Ratio Formula
(Cash Flow Measurement Formula) is relatively straightforward:
Divide total annual dividend payments
by annual Net Income plus Noncash Expenses minus Noncash Sales.
Calculating the
Dividend Payout Ratio for
one year provides a very unreliable indication only. A better approach
is to run a trend line on the ratio for several years to see if a
general pattern of decline or increase emerges.
This ratio is useful in projecting the
growth of company as well. Its inverse, the Retention Ratio (the
amount not paid out to shareholders in the form of dividends), can help
project a company’s growth.
Compare with Dividend Payout Ratio:
Cash Flow from
Operations |
Debt to Equity Ratio | CFROI |
Cash Value Added |
Cash Ratio |
Economic Value Added
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