Payout ratio
Also called: dividend payout ratio, dividend cover, dividend coverage
Dividends divided by net profit, showing the share of profit paid to shareholders; dividend cover is the reverse.
Compare dividends with free cash flow as well as profit: a dividend not covered by free cash flow over several years is being funded by borrowing, asset sales or savings. The right payout depends on how much the business needs to reinvest.
Example
A dividend of ₹30 per share against EPS of ₹40 is a payout ratio of 75% and cover of about 1.3 times.
Learn more in these lessons
- Dividend payout and coverageHow can you tell whether a company's dividend is sustainable?
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