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Dividends Payout Ratio - Dividend payout ratio is the total dividends paid on common stock divided by income available to common shareholders. When analyzing large corporations and public companies that do pay dividends this is an important metric to watch. The dividend payout ratio should be used in conjuncture with the net investment ratio. The formula for dividend payout ratio is:

Dividends paid / Net income available to common shareholders.

Investors need to be aware of cash paid out and the investment management is making in assets and growth. If the company's net investment rate is 1 or higher and has a high dividend payout ratio then the company may be using more cash than it is generating. In cases like this a further analysis will need to be conducted to determine where the company's sources of funds are coming from. Unfortunately, many times companies in this situation are financing payouts through increased debt.

Typically, utility companies and businesses in mature industries have a higher dividend payout ratio than high growth companies, cyclical or tech. businesses (which in many cases do not even pay dividends).

Example: National Grid (Utility Company)

Fiscal Year Ended	3/31/09	3/31/08	3/31/07
Dividends paid on common shares	$1,191,049	$1,556,178	$1,432,625
Net income available to Common shares	$1,345,971	$6,382,325	$2,249,025
Dividend payout ratio	88.9%	24.4%	63.7%

See also: Dividend Yield