Dividend Payout Ratio Formula (Table of Contents)
- Dividend Payout Ratio Formula
- Dividend Payout Ratio Calculator
- Dividend Payout Ratio Formula in Excel (With Excel Template)
Dividend Payout Ratio Formula
Dividend Payout Ratio Formula 1
Dividend Payout Ratio Formula 2
Dividend Payout Ratio Formula 3
The dividend payout ratio measures the percentage of net income that is distributed to shareholders in the form of dividends during a particular period (quarterly, half-yearly or yearly). In other words, this ratio shows the portion of profits the company decides to keep funding operations and the portion of profits that is given to its shareholders in the form of dividends.
Example of Dividend Payout Ratio Formula
Let’s understand the calculation of Dividend Payout Ratio by a simple example.
Example #1
Here we will discuss formula 1
Year Ended 31st March 2018, Company ABC has distributed an annual dividend payment of INR 10.00 per share. Over the same period, ABC reported net earnings of INR 100.00 per share.
- Dividend Per Share: INR 10 per share
- Earnings per share: INR 100 per share
By using the formula 1, dividend payout ratio of ABC Company is:
- Dividend Payout Ratio = (Dividends per Share * 100)/ Earnings per Share (EPS)
- Dividend Payout Ratio= (INR 10 *100)/ INR100
- Dividend Payout Ratio = 10%
We can say that ABC Company has retained 90% of its profit to the business and 10% of its net profit as dividends to its shareholders in Year Ended 31st March 2018.
Here we will discuss formula 2
Year Ended 31st March 2018, Company XYZ has distributed an annual dividend payment of INR 20.00 Crore. Over the same period, XYZ reported a net profit of INR 100.00 Crore.
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- The total dividend paid: INR 20.00 Crore
- Net Profit: INR 100.00 Crore
By using the formula 2, dividend payout ratio of XYZ Company is:
- Dividend Payout Ratio = (Total Dividends / Net profit)*100
- Dividend Payout Ratio = (INR 20/ INR100) *100
- Dividend Payout Ratio = 20%
We can say that XYZ Company has retained 80% of its profit to the business and 20% of its net profit as dividends to its shareholders in Year Ended 31st March 2018.
Here we will discuss formula 3
ABC and XYZ have Retention of Profit 90% and 80% respectively for the Year Ended 31st March 2018.
Now, we can calculate the Dividend Payout Ratio by using formula 3:
| ABC Company Dividend Payout Ratio | XYZ Company Dividend Payout Ratio |
| Retention of Profit = 90%
Formula: Dividend Payout Ratio = 1- Retention Ratio = 1 – 90% |
Retention of Profit = 80%
Formula: Dividend Payout Ratio = 1- Retention Ratio = 1 – 80% |
| Dividend Payout Ratio = 10% | Dividend Payout Ratio = 20% |
Example #2
Let’s discuss on the practical industry scenario on the Dividend payout ratio to understand better.
We have considered financial figures of India Oil Corporation Ltd of FY2015 to FY2018 to calculate the Annual Dividend Payout Ratio:
| Particulars (In INR Crs) | FY2018 | FY2017 | FY2016 | FY2015 |
| Net Profit | 21,346.12 | 19,106.40 | 11,242.23 | 5,273.03 |
| Dividends | 9,478.96 | 10,545.42 | 2,867.53 | 1,602.45 |
| Dividends Payout Ratio | 44.41% | 55.19% | 25.51% | 30.39% |
The company has distributed around 44% of net profit in the form of dividends to its shareholders and retained around 66% into the business. There is volatility in the dividend payout for the company from the period FY2015 to FY2018. Generally, High cash requirements impact the dividend payout ratio for the company to its investors.
Example #3
We have considered financial figures of Godrej Consumer Products Limited of FY2015 to FY2018 to calculate the Annual Dividend Payout Ratio
| Particulars (In INR Crs) | FY2018 | FY2017 | FY2016 | FY2015 |
| Net Profit | 999.87 | 847.72 | 739.72 | 654.45 |
| Dividends | 613.12 | 195.78 | 195.81 | 187.24 |
| Dividends Payout Ratio | 61.32% | 23.09% | 26.47% | 28.61% |
The company has distributed around 61% of net profit in the form of dividends to its shareholders and retained around 39% into the business. There is volatility in the dividend payout for the company from the period FY2015 to FY2018.
Explanation
A company pays a dividend to its shareholders/investors to distribute its profit for the period as against their investments. When a company earns a profit for the period, the company is able to retain proportion or full of its profit in the business and pays a proportion of the profit in the form of a dividend to its shareholders. Distribution of dividends to shareholders may be in cash or, the company has growth plan by reinvestment of dividends, it can be paid by the issue of additional shares or share repurchase on a higher price.
Many Public companies usually pay a dividend on a fixed schedule (Quarterly, half yearly of yearly), but may declare a dividend at any point of time, sometimes called a special dividend (Interim Dividend) to distinguish it from the fixed schedule of dividend declarations. Many instances, a company doesn’t pay a dividend to the shareholders because of its expansion or growth plan of the company.
Net Income = Retained Earnings + Total Dividends Paid
From the income and expenditure accounts of the company, we can get the net income for the year and in a balance sheet, retained earnings would be found. We can check the footnotes of the company to know the dividends paid by the company for the particular year and balance sheet to know the retained earrings.
Significance and Use of Dividend Payout Ratio Formula
- Dividend and market price of a stock is interrelated to each other because investors want current dividend more than future capital gain or dividends.
- Generally, Investors prefers higher dividend payout stocks over the low dividend payout stocks.
- It helps to understand the investor about the future plans of the company in short term or long term period of time.
- Balanced payout of dividends will help to sustain in the industry for a longer period by retained profit in the up gradation of machinery, research & Development etc.
- Retained earnings and dividend payout is interrelated and retained earnings help to the company to strengthen its net worth and leads to a comfortable capital structure.
Dividend Payout Ratio Calculator
You can use the following Dividend Payout Ratio Calculator
| Dividends per Share | |
| Earnings per Share | |
| Dividend Payout Ratio | |
| Dividend Payout Ratio = |
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Dividend Payout Ratio Formula in Excel (With Excel Template)
Here we will do the same example of the Dividend Payout Ratio formula in Excel. It is very easy and simple. You need to provide the two inputs i.e Total Dividends and Net profit
You can easily calculate the Dividend Payout Ratio using Formula in the template provided.
Dividend Payout Ratio of India Oil Corporation Limited is Calculated as:
Dividend Payout Ratio of India Godrej Consumer Products Limited is Calculated as:
Recommended Articles
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