A.I.M. Users Bulletin Board

[AIMStudent]

Hi SF, Dividend Payout Ratio

Dividend Payout Ratio = Dividends Paid / Net Income (or Dividends Per Share / EPS)

Lets assume the Payout Ratio is 50%. This means the company is returning 50% of total Net Income to the shareholder in the form of Dividends with the other 50% going to Retained Earnings.

Now assume the Payout Ratio is > 100%. This means the company is paying out over 100% of Net Income for the period. Where does that additional capital come from? Generally from Retained Earnings (or from capital raised in debt offerings.) Either way, it is tantamount to "spending beyond your means" which generally is not sustainable long term.

As an example, DX has a Payout Ratio of 302.4% of Net Income. How long is that sustainable?