Tuesday, January 17, 2017

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 It might be a bit old, but his information is not out of date.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.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter.

1 comment:

  1. Great article. I cover every point of my doubts. I loved this post. 
    Thank you so much for this article.
    Web Development Company
    Business Development Company