Dividend to Earning Ratio

Dividend to Earning Ratio

Dividend to earning ration can be express by simple formula. It is important remember that high ratio reflect that high amount is paid to the shareholder, where low ratio reflect the low payout to the equity holder.

Dividend to earnings Ratio = (Dividend)

                             (Earning)

Divided to earnings Ratio example

A company has paid divided 10 million & 15 million during the year 2001 & 2002 respectively. The earning of the company was 25 million each year.

Solution

1.    10 million Dividend payment

= Dividend/earning

= million/25 million

= 40%

2.    15 million dividend payment

= Dividend/earning

= million/25 million

= 60%

Above answer clearly shows that high dividend to earnings ratio means that you are distributing most of profit to equity holders.