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Dividend Payout Ratio
Valuation & Fundamentals
Dividends paid as a share of net income.
It shows how much of what the company earns goes to shareholders and how much is reinvested in the business. A ratio that stays above 100% for long means the dividend is being funded from accumulated cash or borrowing rather than from earnings, which is why some investors also calculate it against free cash flow.
Example
A company with EPS of $5 that pays $2 per share in dividends has a payout ratio of 40%.
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