Payout Ratio Definition For Stocks

A security’s Payout Ratio refers to how much of its total earnings are dedicated towards satisfying their dividend obligations to shareholders.

The lower a company’s Payout Ratio, the more safe it is, and more likely that they have room to increase their dividend yield to compete with other interest bearing financial instruments.

Higher Payout Ratios are considered less sustainable, which is why they need to be taken into consideration before making an investment.