Dividend Payout Ratios

For Dividend Payout Ratios, they will change depending on the type of company or the sector the company is in. There are some rules of thumbs that you can follow. For Dividend Payout Ratio in connection with EPS I look for the following ratios.

Sector	DPR
REITs	75% to 95%
Utilities	70% to 80%
Non-Utilities	50% to 60%
Banks	40% to 55%

Note that some people calculate the earnings Dividend Payout Ratios using Dividends over Net Income. There can be a big difference between that calculation and Dividends per Share over EPS if there is a big difference between the basic and diluted EPS. Also some analyst use Cash Dividends over Net Income. If the company is has a DRIP plan there could be a big difference the dividends paid and the cash dividends paid.

I also check the Dividend Payout Ratio against Cash Flow per Share. The Cash Flow per Share I generally use is that after removing working capital. (See my blog for further information on Cash Flow.) The rule of thumb here is that Dividend Payout Ratios for Cash Flow per Share should not be greater than 40%.

These are just guidelines. Fast growing companies will need to retain earnings for expansion and/or reinvestment purposes. There is a tradeoff for some companies about what to give shareholders in dividends and what to hold on to for investment purposes. Some companies have very low payout ratios because of this.

As expected Investopedia has an article on this subject. There is also an article on Wikipedia. What is interesting about this article is that they have a chart about average payout ratios from the 1930's to the 2000's. This table says the payout is based on Operating Earnings, which excludes non-operating expenses such as interest and taxes. An article My Accounting Course also talks about Dividend Payout Ratios.

John Heinzl in the Globe and Mail wrote an interesting article on this subject in 2013. It might be a bit old, but his information is not out of date. There is also a long, but easy to read talk about this subject on Wiki How. The most interesting item on this article by Simply Safe Dividends is the chart of Dividend Payout Ratios by sector for the S&P500.

On my other blog I wrote yesterday about Sylogist Ltd (TSX-SYZ, OTC-SYZLF)...learn more. Tomorrow, I will write about Toronto Dominion Bank (TSX-TD, NYSE-TD)... learn more on Wednesday, January 18, 2017 date around 5 pm.

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