Payout Ratio

The payout ratio is the percentage of a company's earnings that it returns to shareholders as dividends rather than reinvesting in the business. You'll see this metric when researching dividend stocks—it tells you how generous (or conservative) a company is being with its profits. A higher ratio means more cash in your pocket; a lower ratio means the company is keeping profits to grow or weather tough times. For example, if TechCorp earns $100 million and pays out $30 million in dividends, its payout ratio is 30%. There's no perfect number—some investors love high payouts for income, while others prefer companies that reinvest for growth. Just remember: an extremely high ratio (above 100%) is a red flag, since the company can't sustain it forever.