What Is the Dividend Payout Ratio?
The dividend payout ratio tells you how much of its profit a company hands back to shareholders as dividends, versus how much it keeps to reinvest. It's a window into the company's priorities.
The formula
Payout ratio = dividends paid ÷ net profit (or, per share, dividend per share ÷ EPS). A company that earns ₹100 and pays ₹30 in dividends has a 30% payout ratio — it keeps the other 70% to reinvest. That retained part is the "retention ratio."
What a high vs low payout tells you
- High payout — mature, cash-rich companies with fewer growth opportunities tend to return more. Good for income investors.
- Low payout — younger, fast-growing companies reinvest profits to grow, so they pay little. The reward is expected via a rising share price.
The sustainability check
A payout ratio above 100% means the company is paying out more than it earns — dipping into reserves or borrowing to fund the dividend, which usually can't last. That's a warning the dividend may be cut. Read the payout ratio alongside dividend yield: yield tells you the income relative to price, payout tells you whether that income is sustainable.