Formula
Payout ratio = total dividends ÷ net income × 100 (%)
If a company pays KRW 40 billion of its KRW 100 billion net income as dividends, the payout ratio is 40%.
Definition
The payout ratio is the total dividends paid over a year divided by net income for the same period. It shows what percentage of earnings is returned to shareholders as dividends. A payout ratio of 40% means 40% of net income is paid as dividends and the remaining 60% is kept in the company and reinvested.
If dividend yield looks at dividends relative to the share price, the payout ratio looks at dividends relative to earnings. It is therefore used to gauge whether the current dividend can continue without strain given the size of the company's earnings.
The payout ratio reveals a company's leanings. Mature companies with few places for large reinvestment tend to keep the payout ratio high, while growth companies with many businesses still to build tend to keep it low and reinvest earnings. Jupick reads it in the dividends area together with dividend yield and consecutive dividend years.
How to read it
In general, an appropriate payout ratio sits at a balance point where the company returns part of its earnings to shareholders while keeping room to reinvest for growth. The range of 20 to 50% is commonly called reasonable, but the right level differs by sector and stage of growth.
A very low payout ratio draws complaints of stinginess toward shareholders, while an excessively high one raises concerns about sustainability. In Jupick's strengths and weaknesses summary, a payout ratio above 100% is labeled “Pays more in dividends than it earns”, flagging doubts about sustainability.
Reading it with dividend yield makes the picture clearer. A high dividend yield with a payout ratio the company can afford is a healthy dividend, while a high dividend produced by an extremely high payout ratio may be hard to keep up for long.
Payout ratio across the market now
The values that fall at each point when the stocks Jupick covers are lined up by Payout ratio, smallest to largest. Positions in the line are used instead of an average because a few unusually large values can drag a single average a long way.
KoreaBased on 149 stocks
| Lowest 25% | Middle | Highest 25% |
|---|---|---|
| 18% | 27% | 40% |
Smallest value -34%, largest value 327%
Of the major Korean stocks, only 149 made it into this table. Left out: 51 stocks whose value is not a measured one.
OverseasBased on 199 stocks
| Lowest 25% | Middle | Highest 25% |
|---|---|---|
| 16% | 31% | 59% |
Smallest value 0%, largest value 237%
Stocks are rarely left out at random. Companies for which a metric does not hold, or for which the source gives no value, tend to be the ones in weaker shape, so the stocks left in the table are the ones in better condition. The middle value of such a table leans to the favorable side compared with the whole market, and the more stocks are left out, the more it leans.
How to read each range
- Lowest 25%
- The bottom quarter for the share of earnings paid out as dividends. These companies lean toward keeping profit inside and reinvesting it. Companies that pay no dividend are included here at 0%.
- Middle half
- The payout ratio is in the common range for the market. The balance point between what is returned to shareholders and what is kept for reinvestment generally sits in this band, but the right level differs by sector and stage of growth.
- Highest 25%
- The top quarter for the share of earnings paid out as dividends. Values above 100%, if any, sit at the top of this band; that means paying out more than the year's earnings, which may be covered by accumulated profit or debt. In a year when net income drops sharply for a while, the value also jumps into this band.
The two values at either end of the table above are the boundaries that split the stocks into three groups. What it means to belong to each group is written above.
Two stocks that fall just either side of a boundary have practically the same value. Being in different groups does not by itself make them different. The boundaries are drawn again from each day’s sample, so a company can change groups even when nothing about it has changed.
Lowest and highest describe the order of size only, not good or bad. The data is updated once a day.
Stocks with a high payout ratio now
- 1CSHINSEGAE Inc.327%
- 2BDigital Realty Trust, Inc.237%
- 3BRealty Income Corporation235%
- 4BPfizer Inc.226%
- 5CLOTTE SHOPPING CO.,LTD.219%
Sorted from the highest payout ratio. A very high payout ratio can make the dividend hard to keep when earnings fall, so a higher value is not simply a better one.
Points to watch
- A payout ratio above 100% means paying out more than the year's earnings. The dividend is being covered by accumulated profit or debt, which is hard to keep up for long.
- In a year when net income drops sharply for a while, the payout ratio shoots up momentarily even if the dividend stays the same. Judging from a single year can be misleading.
- In a loss-making year (negative net income), the payout ratio turns negative and loses its meaning. Paying a dividend anyway means drawing down the company's reserves.
- Shareholder returns through share repurchases and cancellations do not show up in the payout ratio, so judging total shareholder returns from the payout ratio alone can understate them.