Knowledge Centre
Dividend Payout Ratio (also see Dividend section)
Dividend Payout Ratio = Total Dividends / Total Net Earnings x 100%, or
Dividend Payout Ratio = Dividend per Share / Earnings per share (EPS) x 100%
The relationship between dividend and earnings is important to TEAM. It demonstrates how much is being paid away versus how much is available for the company to invest. High dividend payouts leave less cash available for the company and therefore have implications for cash management and liquidity, leading to capital structure consequences (see above).
Mature, stable and large companies usually have higher dividend payout ratio. Companies which are young and seeking growth typically have a lower, or modest, dividend payout ratio. TEAM portfolios seek a mix according to the client income distribution needs.
It should be remembered that dividends are paid out of cash not stated earnings or earnings per share (EPS). EPS includes non-cash items such as depreciation. At TEAM we prioritise Cash earnings payout. Cash earnings per share (CEPS) defined as:
Operating Cash Flow / Diluted Number of Shares in issue
TEAM looks at the below:
Dividend per share / CEPS x 100%