Over the same period, TED reported net earnings of $20 per share. Using the formula above, Company TED’s dividend payout ratio is:
In other words, Company TED distributed 20% of its net income as dividends last year and retained the remaining 80% for other operating needs.
A company’s dividend payout ratio can be affected by a number of factors.
Businesses in different growth stages can be expected to have different dividend policies. A young, fast-growing company is usually focused on reinvesting earnings in order to grow the business. As such, they generally sport low (or even zero) dividend payout ratios.
On the other hand, larger, more-established companies can usually afford to return a larger percentage of earnings to stockholders.
In addition, when comparing dividend payout ratios, you should also remember that they will vary widely according to industry.
For example, where many high-tech sectors often distribute small or non-existent dividends while banks and utilities typically pay out a