The payout ratio tells you what fraction of a company's earnings it actually sends back to shareholders as cash dividends, and what fraction it keeps inside the business to grow. A 30% payout ratio means the board paid out 30 cents of every dollar of profit and reinvested the other 70 cents. That single number is one of the fastest ways to read a dividend stock's policy: is it a mature cash machine paying out most of what it earns, or a still-growing company keeping most profits to fund expansion?
This payout ratio calculator takes your trailing earnings per share (EPS), dividends per share (DPS), and optional return on equity (ROE), and instantly returns the payout ratio, the retention ratio, retained earnings per share, and the approximate sustainable growth rate — how fast the company can grow without raising outside capital.
How to Use
- Enter Earnings Per Share (EPS) — the company's net income over the last twelve months divided by diluted shares outstanding. You can find this on the income statement or in any stock screener.
- Enter Dividend Per Share (DPS) — total dividends paid over the last twelve months divided by shares outstanding. If the company pays a quarterly dividend of $0.45, DPS is $1.80.
- Optionally enter Return on Equity (ROE) — net income divided by average shareholders' equity. This is used only to estimate the sustainable growth rate; leave it at the default if you do not know it.
- Read the result card. The Payout Ratio is the headline number. The Retention Ratio is simply 100% minus the payout ratio. Retained Earnings Per Share is the dollar amount of profit kept back per share. Sustainable Growth Rate (SGR) shows how fast earnings can compound using only retained profit, assuming ROE holds.
Sliding DPS up and down shows how the balance shifts: raise the dividend by 10% and the payout ratio climbs, the retention ratio falls, and the sustainable growth rate drops by a roughly equal amount. That trade-off is the core dividend decision every board makes.
The Payout Ratio Formula
The calculation itself is deliberately simple:
Payout Ratio = Dividends Per Share / Earnings Per Share
For a company earning $6.00 per share and paying $1.80 per share in dividends, the payout ratio is $1.80 / $6.00 = 30%. The remaining $4.20 per share stays in the business — that is the retained earnings per share. The Retention Ratio is $4.20 / $6.00 = 70%, and by definition payout ratio plus retention ratio always equals 100%.
The Sustainable Growth Rate (SGR) comes from multiplying the retention ratio by the return on equity:
SGR = Retention Ratio × ROE
With a 70% retention ratio and a 14.29% ROE, SGR = 0.70 × 14.29% = 10.0%. This is the growth rate the company can achieve without taking on new debt or issuing new shares. If management wants to grow faster than SGR, it must either raise capital externally, buy back fewer shares, or cut the dividend.
What a Healthy Payout Ratio Looks Like
- Below 30% — conservative. The company keeps most of its profit to fund growth, and the dividend has plenty of headroom to rise even if earnings dip.
- 30–50% — the classic "sweet spot" for dividend growers. There is enough payout to reward income investors, and enough retained cash to expand the business.
- 50–80% — mature. The company is likely in a slower-growth industry (utilities, consumer staples, telecom) and returns most earnings to shareholders.
- Above 80% (or over 100%) — a warning sign. A payout ratio above 100% means the company is paying out more than it earns, which usually signals a dividend cut ahead unless earnings rebound quickly.
A payout ratio above 100% is the most important red flag this calculator surfaces. If DPS is $5.00 and EPS is $4.00, the payout ratio reads 125%, retained earnings per share is negative $1.00, and the SGR is negative — meaning the dividend is currently being funded by cash reserves or borrowing, not by profit.
Examples
Example 1 — A typical dividend grower. A consumer staples company reports EPS of $6.00 and an annual dividend of $1.80 per share. Entering those figures gives a payout ratio of 30.0%, retained earnings of $4.20 per share, a retention ratio of 70.0%, and — with a 14.29% ROE — a sustainable growth rate of 10.0%. This is the textbook profile of a dividend aristocrat: double-digit earnings growth plus a slowly rising dividend.
Example 2 — No dividend at all. A fast-growing software firm earns $6.00 per share but pays a $0.00 dividend. The calculator shows a payout ratio of 0.0%, retained earnings of $6.00, a retention ratio of 100%, and an SGR equal to its ROE — typically 15–25% for a high-ROE software business. The company is reinvesting every dollar back into expansion.
Example 3 — A mature utility. A regulated utility earns $4.00 per share and pays a $3.00 dividend. The payout ratio is 75.0%, retained earnings are $1.00, and the retention ratio is 25.0%. With a 12% ROE, the SGR is only 3.0%. Investors buy this stock for the high and growing dividend, not for capital appreciation.
Example 4 — A stretched payout. A retailer earns $4.00 per share but keeps paying a $5.00 dividend to defend its dividend streak. The calculator flags a payout ratio of 125.0%, negative retained earnings of -$1.00, and a negative SGR of -3.0%. This is the classic setup for a dividend cut.
FAQ
How do you calculate the payout ratio?
Divide dividends per share (DPS) by earnings per share (EPS) and multiply by 100. For example, $1.80 DPS divided by $6.00 EPS equals a 30% payout ratio. The formula is DPS / EPS × 100%.
What is a good payout ratio?
For most companies, a payout ratio between 30% and 50% is healthy: it rewards shareholders while leaving cash for growth. Mature industries like utilities and consumer staples often run 50–80%. A ratio above 80% means the dividend has limited room to grow, and a ratio above 100% usually signals an impending dividend cut.
What is the difference between payout ratio and dividend yield?
The payout ratio compares dividends to earnings (DPS / EPS) and measures how the board allocates profit. The dividend yield compares dividends to the stock price (DPS / share price) and measures the cash return an investor earns at today's price. A stock can have a high yield and a low payout ratio, or vice versa.
What does a payout ratio over 100% mean?
A payout ratio above 100% means the company is paying out more in dividends than it is earning. That is unsustainable over the long run — usually funded by cash on the balance sheet, new debt, or asset sales. Investors should expect a dividend cut unless earnings recover quickly.
How does the payout ratio relate to the sustainable growth rate?
The sustainable growth rate (SGR) equals the retention ratio times return on equity: SGR = (1 − payout ratio) × ROE. A lower payout ratio leaves more earnings to compound internally, which raises the SGR. A company that pays out 0% of earnings can grow at its full ROE; one that pays out 100% has essentially no internal growth.
Should I prefer high or low payout ratio stocks?
It depends on your goal. If you want current income, look for mature companies with a stable 50–80% payout ratio and a long dividend history. If you want long-term total return, look for 20–40% payout ratios that still fund double-digit growth. Avoid any payout ratio above 100% unless you have a specific reason to believe earnings will rebound.
Disclaimer
This payout ratio calculator is provided for informational purposes only and does not constitute financial, investment, tax, or accounting advice. The payout ratio, retention ratio, and sustainable growth rate estimates are based on the inputs you enter and the standard formulas DPS / EPS and SGR = ROE × retention ratio; actual results vary by company, industry, accounting policy, and business cycle. Past payout behavior is not a guarantee of future dividends. Always verify the latest EPS, DPS, and ROE figures from the company's SEC filings and consult a licensed investment professional before making any investment decision.