Management Glossary

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dividend payout ratio
The percentage of a firms earnings that it pays out in dividends. This is important because dividends should, and in many jurisdictions must, be paid out of current or accumulated past earnings rather than borrowing against future earnings to pay dividends. Some public companies formally state a dividend payout ratio objective and regularly adjust dividends when they fall above or below the value required to meet this objective. Companies are not under any obligation to do so. Whether or not they state such a commitment, the dividend payout ratio is the measure of the actual ratio of dividends to earnings, not the stated objective.
Contributed by: Managerwise Staff

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