# Dividend Payout Ratio ( DPR )

Investment Formula Description

Dividend Payout Ratio ( DPR ) is an investment formula to measure corporations' dividend policy.

It basically shows investors the percentage of the net income ( NI ) or earnings per share ( EPS ) are paid out as dividends. The retained earnings that are not paid to investors will keep for investment to provide future earnings growth. Investors can base on dividend payout ratio ( DPR ) to assess dividend policy of the corporations. Investors that are looking for high dividend yield can invest in corporations with high dividend payout ratio ( DPR ) while investors that are looking for capital gains and high growth rate can invest in corporations with low dividend payout ratio ( DPR ). Dividend distribution will reduce return on equity ( ROE ) and eventually impact the growth rate of the companies because part of the earnings was distributed as dividends and it is not reinvested to retain growth for the companies. Normally, high growth companies will have zero dividend payout ratio ( DPR ) in the early stage as they reinvested all the profit to generate higher growth. When these companies become mature, they will start to have higher dividend payout ratio ( DPR ). A reduction on dividend pay out looks poorly in investors' eye. Only stable dividend payout ratio ( DPR ) can show investors solid and stable dividend policy from the corporations. Besides, investors can go through important dividend date and myth of dividend payout to understand better everything about dividends.

Investment Formula

Dividend Payout Ratio ( DPR ) = Dividend Per Share / Earnings per Share ( EPS )

Dividend Payout Ratio ( DPR ) = Total Dividend Payout / Net Profit

Investment Formula Example

Corporation EFG earned \$2.50 earnings per share ( EPS ) for this financial year and it declared to paid \$ 1.00 as yearly dividend per share to investors. The dividend payout ratio ( DPR ) calculations is as following.

Dividend Payout Ratio ( DPR )  = Dividend Per Share / Earnings Per Share ( EPS )  =  1.00 / 2.50 = 0.4 or 40%

Corporation EFG will pay 40% of its earnings per share (EPS ) as dividend to its shareholders while keeping 60% of its earnings per share ( EPS ) for future growth. The dividend payout ratio ( DPR ) for corporation EFG is 40%

The net profit or net income for corporation EFG is \$5,000,000 and the total amount of dividends paid to investors are \$2,000,000. The dividend payout ratio calculation for corporation EFG is as following.

Dividend Payout Ratio ( DPR )  = Total Dividend Payout / Net Profit  = 2,000,000 / 5,000,000 = 0.4 or 40%

Even the investors use another dividend payout ratio ( DPR ) investment formula to calculate the dividend payout ratio ( DPR ) , the dividend payout ratio ( DPR ) for corporation EFG is still 40%.