What is the ‘Dividend Payout Ratio’

The dividend payout ratio is the ratio of the total amount of dividends paid out to shareholders relative to the net income of the company. It is the percentage of earnings paid to shareholders in dividends. The amount that is not paid out to shareholders is retained by the company to pay off debt or to reinvest in core operations.

The dividend payout ratio can be calculated as the yearly dividend per share over the earnings per share, or equivalently, the dividends divided by net income (as shown below):

Dividend Payout Ratio Formula

Why Dividend payout is good for investors? and why it matters?

“The only thing that gives me pleasure is to see my dividend coming in.” –John D. Rockefeller.

One of the simplest ways for companies to communicate financial well-being and shareholder value is to say “the dividend check is in the mail.” Dividends, those cash distributions that many companies pay out regularly to shareholders from earnings, send a clear, powerful message about future prospects and performance. A company’s willingness and ability to pay steady dividends over time – and its power to increase them – provide good clues about its fundamentals. (Source: Investopedia)

These are good companies that you can focus in the year 2018:

High Risk Investment Warning:

Please note that Stocks & Shares carry risk and trading involves significant risk of loss, It is not suitable for all investors and you should make sure you understand the risks involved, it is recommended that you seek an independent advice, if necessary.

 

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