What is the dividend payout ratio formula?

Payout ratio = dividends ÷ net income, or dividends per share ÷ earnings per share.

What is the retention ratio?

The share of earnings kept in the business: 1 − payout ratio.

What is a good payout ratio?

It depends on the industry and growth stage. Stable, mature firms often pay 40–70%; growth companies may pay little or nothing.

Can the payout ratio be over 100%?

Yes, when dividends exceed earnings. That is usually temporary and can signal a future dividend cut.

Dividend Payout Ratio Formula

Home › Finance Formulas › Dividend Payout Ratio Formula

Dividend Payout Ratio Calculator

The dividend payout ratio is the fraction of a company’s net income that it pays to shareholders as dividends. It can be computed from company totals (total dividends ÷ net income) or per share (dividends per share ÷ earnings per share); both give the same number. The rest of the profit, the retention or plowback ratio, stays in the business to fund growth or repay debt.

Formula

Payout ratio = DividendsNet income Retention ratio = 1 − payout ratio

Where

Dividends: total dividends paid to common shareholders (or dividends per share)
Net income: net income for the same period (or earnings per share)

Calculator

Dividends paid

Net income

Result and step-by-step solution

Dividend payout ratio

40%

Retention (plowback) ratio 60%: 3,000,000.00 stays in the business.

Divide dividends by net income
2,000,000.005,000,000.00 = 40%
Retention ratio
1 − 0.4 = 60%

How to use the formula

A mature company with few growth opportunities, such as a utility, may pay out 60 to 80% of earnings; a fast-growing firm may pay nothing and reinvest everything. A ratio above 100% means the company is paying more than it earns, funding the dividend from reserves or borrowing, which cannot last indefinitely.

In the example a company earning 5,000,000 pays 2,000,000 in dividends: a payout ratio of 40% and a retention ratio of 60%, so 3,000,000 is reinvested. The retention ratio matters for valuation: sustainable growth is often estimated as retention ratio × ROE, which you can combine with the ROE formula and feed into the Gordon growth model.

Frequently asked questions

What is the dividend payout ratio formula?: Payout ratio = dividends ÷ net income, or dividends per share ÷ earnings per share.
What is the retention ratio?: The share of earnings kept in the business: 1 − payout ratio.
What is a good payout ratio?: It depends on the industry and growth stage. Stable, mature firms often pay 40–70%; growth companies may pay little or nothing.
Can the payout ratio be over 100%?: Yes, when dividends exceed earnings. That is usually temporary and can signal a future dividend cut.

Last reviewed: September 26, 2026. Calculations run in your browser and were checked against numpy-financial, SciPy and published spreadsheet examples.