Dividend Payout Ratio
Percentage of earnings paid out as dividends.
Definition
The dividend payout ratio measures the proportion of earnings distributed to shareholders as dividends. A ratio below 50% is generally considered sustainable and leaves room for earnings reinvestment. Banks face regulatory constraints on payout ratios, particularly after failing stress tests.
Formula
Payout Ratio = Dividends Per Share / Earnings Per Share × 100
Why It Matters
A sustainable payout ratio (typically 30-50% for banks) signals confidence in future earnings and provides a margin of safety for maintaining dividends during temporary earnings dips.