Dividend Payout Ratio

The Payout Ratio tells us what proportion of profits the company is paying out as dividends.

If a company has £2m in profits, and pays out £1m in dividends, then the payout ratio is 50%. Investors seeking high current income and limited capital growth prefer companies with high Dividend payout ratio.

However investors seeking capital growth may prefer lower payout ratio if capital gains are taxed at a lower rate. High growth firms in early life generally have low or zero payout ratios. As they mature, they tend to return more of the earnings back to investors.

As we define the Dividend from the Cashflow statement, that means that it's a negative cash-flow item so the Dividend Cover is negative and so is the Payout Ratio, so it's important to be aware of this when screening. This is measured on a TTM basis.