How is the dividend payout ratio calculated?



Q39. Dividend payout ratio
How is the dividend payout ratio calculated?

A39.
Dividend payout ratio = (A) / (B)
Where,
(A) = Cash dividends declared on common stock
(B) = Net income

[Entity 39-a]
Cash dividends declared on common stock = $93,600
Net income = $780,000
Dividend payout ratio
= $93,600 / $780,000 = 12%

[Entity 39-b]
Cash dividends declared on common stock = $79,500
Net income = $530,000
Dividend payout ratio
= $79,500 / $530,000 = 15%

[Note]
Dividend payout ratio is higher for Entity 39-b than for Entity 39-a.
Thus Entity 39-b paid a higher percentage of its net income as cash dividends to common stockholders than did Entity 39-a.