Editing Dividend (section)

==Payout ratio==
A dividend payout ratio characterizes how much of a company's earnings (or its cash flow) is paid out in the form of dividends.

Most often, the payout ratio is calculated based on dividends per share and [[earnings per share]]:<ref>{{Cite news|url=https://www.investopedia.com/terms/p/payoutratio.asp|title=Payout Ratio|last=CFA|first=Elvis Picardo|date=25 November 2003|work=Investopedia|access-date=4 August 2018|language=en-US}}</ref>

{{block indent|1=Payout ratio = {{big|{{sfrac|dividends per share|earnings per share}}}} × 100}}

A payout ratio greater than 100% means the company paid out more in dividends for the year than it earned.

Since earnings are an accountancy measure, they do not necessarily closely correspond to the actual cash flow of the company. Hence another way to determine the safety of a dividend is to replace earnings in the payout ratio by [[free cash flow]]. Free cash flow is the business's operating cash flow minus its capital expenditures: this is a measure of how much incoming cash is "free" to pay out to stockholders and/or to grow the business.

{{block indent|1=Free cash flow payout ratio = {{big|{{sfrac|dividends per share|free cash flow per share}}}} × 100}}

A free cash flow payout ratio greater than 100% means the company paid out more cash in dividends for the year than the "free" cash it took in.