Dividend Payout Ratio Calculator
Calculate dividend payout ratio, check sustainability with FCF and debt analysis, or estimate sustainable growth rate using the Gordon Growth Model. Works with any currency.
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How to Use This Calculator
Tab "Payout Ratio"
Enter dividends per share (DPS) and earnings per share (EPS) to calculate the payout ratio as a percentage. Alternatively, switch to total mode and enter total dividends paid and net income. The calculator rates the result: conservative (<30%), healthy (30–60%), elevated (60–80%), potentially unsustainable (>80%), or paying from reserves (>100%).
Tab "Sustainability Check"
Enter the payout ratio (from Tab 1 or known), dividends per share, free cash flow per share, and debt-to-equity ratio. The calculator computes the FCF payout ratio as an alternative sustainability measure and provides an overall sustainability assessment (Strong, Moderate, or Weak) based on multiple factors.
Tab "Retention & Growth"
Enter the payout ratio and return on equity (ROE). The calculator derives the retention ratio and applies the Gordon Growth Model to estimate the sustainable growth rate — how fast the company can grow using only retained earnings.
The Formulas
Payout Ratio = Dividends Per Share / Earnings Per Share × 100%
Or: Payout Ratio = Total Dividends / Net Income × 100%
Retention ratio:
Retention Ratio = 1 − Payout Ratio
FCF payout ratio:
FCF Payout = Dividends Per Share / Free Cash Flow Per Share × 100%
Sustainable growth rate (Gordon Growth):
Sustainable Growth = Retention Ratio × ROE
All calculations are universal. No country-specific tax rates or regulations are applied. Results are estimates based on trailing data and standard financial formulas.
Worked Examples
Example 1 — Healthy dividend payer: EPS $4.50, DPS $1.80
A company earns $4.50 per share and pays $1.80 in annual dividends.
At 40%, this company balances rewarding shareholders with retaining earnings for growth. The retention ratio of 60% provides ample room for reinvestment.
Example 2 — Elevated payout: EPS $3.00, DPS $2.70
A mature utility company earns $3.00 per share and pays $2.70 in dividends.
A 90% payout leaves very little margin for reinvestment or handling earnings declines. While some mature, regulated utilities sustain high payouts, this level warrants careful scrutiny of cash flow coverage.
Example 3 — Sustainable growth: 60% retention, 18% ROE
A company with a 40% payout ratio (60% retention) and 18% return on equity.
The Gordon Growth Model estimates this company can grow earnings at 10.8% annually using only retained earnings — no external financing needed. This is a strong growth profile with a balanced dividend policy.
Understanding Dividend Payout Ratios
What Is the Payout Ratio?
The dividend payout ratio measures the percentage of earnings a company distributes to shareholders as dividends. It tells you how much of each dollar earned goes to dividends versus being retained for reinvestment, debt reduction, or reserves.
How to Interpret the Ratio
There is no single “right” payout ratio — it depends on the company’s life stage, industry, and growth prospects. High-growth technology companies often pay 0–20%, mature utilities may pay 60–80%, and REITs are required to distribute at least 90% of taxable income. A ratio above 100% means the company is dipping into reserves or taking on debt to pay dividends — a red flag unless it is a temporary situation.
Earnings vs Free Cash Flow Payout
The earnings-based payout ratio can be misleading because accounting earnings include non-cash items like depreciation and amortisation. The FCF payout ratio (dividends divided by free cash flow) often gives a clearer picture of whether the company can actually afford its dividend from cash generated by operations.
The Retention-Growth Connection
Every dollar paid out is a dollar not reinvested. The Gordon Growth Model formalises this trade-off: sustainable growth equals the retention ratio times ROE. Companies with high ROE and strong reinvestment opportunities create more shareholder value by retaining earnings. Companies with few attractive investment options may be better off returning cash via dividends.
Sector Norms
Payout ratios vary significantly by sector. Technology and healthcare companies typically have low ratios (0–30%), consumer staples and industrials moderate (30–60%), and utilities, telecom, and REITs high (60–100%+). Always compare a company’s payout ratio against its sector peers rather than an absolute standard.