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Dividend Payout Ratio

What Does Dividend Payout Ratio Mean?

The dividend payout ratio is the fraction of a company's net income that it pays to its stockholders in the form of dividends. The remaining income is kept by the company to pay off its debts or to reinvest, often to bolster core operations.

Some companies use stock buybacks as an alternative to dividends, in which case this ratio becomes less meaningful.

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Insuranceopedia Explains Dividend Payout Ratio

The dividend payout ratio measures the percentage of net income distributed to shareholders on an annual basis. This ratio gives the company an idea of how big a portion of their earnings can be used to meet other financial obligations or keep the company's operations running. The amount that the company keeps is known as its retained earnings.

Companies that pay higher dividends are usually those that operate in mature industries where there is little room for growth.

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