Dividend payout rate – the ratio of the total amount of dividends, paid to depositors, to the company's unblemished income. The deduction rate is a fundamental monetary indicator, which are used to determine the durability of the company's dividend payment program.
Some companies pay shareholder all their profits, while the rest – only a part of the income. The size, which is not paid to shareholders, is held by the company to pay off debt or to reinvest in major operations.
When estimating the dividend payout ratio, some reasons are taken into account, first the level of maturity of the company. Maybe, that a growth-focused company, which seeks to expand, develop new products and enter new markets, will reinvest a huge part or all of its profits, therefore, it is considered the usual small or even zero deductions.
The deduction indicator is useful for assessing the persistence of dividends. Companies are very willing to reduce income from securities, as this can lead to a decrease in the share price and have a bad effect on the company. But, if the company's deduction rate exceeds one hundred percent, it returns more funds to shareholders, what does he make, maybe, will be followed by a decrease in dividends or, in principle, the end of their deductions.
Long-term trends in the deduction ratio also matter. Experts prefer to see a healthy balance between dividend payments and retained earnings. Constant dividend payout rates from year to year, are likely to indicate the maturity of the business and the resilience of the company.
