Legal Definitions - dividend-payout ratio

Definition: The dividend-payout ratio is a profitability ratio that measures the percentage of earnings paid out to shareholders in the form of dividends. It is calculated by dividing the annual dividends per share by earnings per share.

Example: If a company has earnings per share of $2 and pays out dividends per share of $0.50, the dividend-payout ratio would be 0.25 or 25%. This means that the company is paying out 25% of its earnings to shareholders as dividends.

Explanation: The dividend-payout ratio is an important metric for investors as it indicates how much of a company's earnings are being distributed to shareholders. A high dividend-payout ratio may be attractive to income-seeking investors, while a low ratio may indicate that the company is retaining earnings for future growth or investment opportunities.