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Dividend Payout Ratio is the amount of a company’s earnings that were paid out to shareholders relative to the total amount of earning which were available to be paid out to shareholders. To determine the dividend payout ratio use the following formula: Dividends per share / Earnings per share
Earnings Per Share = earnings available to common shareholders # common shares outstanding By taking the amount of earnings that were paid out as dividends to the common shareholders and dividing it by the earnings per share, a fundamental analyst will be able to determine exactly what percentage of a company’s earnings were paid to the shareholders in the form of dividends. If an investor is seeking income she will look for companies that have a higher dividend payout ratio.