The dividend payout ratio is the share of a company's trailing twelve-month earnings paid out as dividends — a payout ratio of 40% means the company distributes 40 cents of every dollar earned and retains the rest.
There's no universal threshold, but a ratio below roughly 60% generally signals room for the dividend to keep growing even through a modest earnings dip. Ratios above 80-100% leave little margin for error — a single bad earnings year can force a cut. REITs and utilities structurally run higher payout ratios than the broad market, so comparisons only make sense within the same sector.
Payout ratio is calculated against reported earnings, which can be distorted by one-time charges or gains. A company with negative or near-zero reported earnings can show a payout ratio over 100% while still comfortably covering its dividend from free cash flow — it's a useful first screen, not a complete picture of dividend safety on its own.
There's no universal number, but below roughly 60% generally leaves room for the dividend to keep growing through a modest earnings dip; above 80-100% leaves little margin for error.
REITs are legally required to distribute most of their taxable income to shareholders to keep their tax-advantaged status, so comparing their payout ratio to a non-REIT is close to meaningless.
Sometimes — reported earnings can be temporarily depressed by one-time charges while free cash flow still comfortably covers the dividend. The payout ratio is a useful first screen, not the full picture.
AAPL analysis shows this metric in context, or browse all S&P 500 tickers.
Educational research only — not investment advice.