A financial tool that computes the percentage of a company’s earnings distributed to shareholders as dividends. This calculation involves dividing total dividends paid by the company’s net income. For example, if a company with a net income of $1 million pays out $250,000 in dividends, the result is a percentage of 25%, indicating that this proportion of earnings is allocated to dividends.
Understanding the proportion of earnings paid out to shareholders offers valuable insights into a company’s financial health and its dividend policy. A high percentage may indicate a mature company prioritizing returning value to shareholders, while a lower percentage might suggest reinvestment in growth opportunities. Historically, this metric has aided investors in assessing the sustainability of dividend payments and evaluating investment potential.