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Dividend Payout Ratio (Example, Formula) | Calculate Dividend Payout - YouTube
Channel: WallStreetMojo
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hello friend today we are going to
discuss on dividend payout ratio we are
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at a Wallstreetmojo site and this is designed by Dheeraj vaidya so
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basically let's describe what
what is dividend payout ratio the
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dividend payout ratio is the amount of
dividends paid to stockholders relative
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to the amount of total net income of a
company amount that is not paid out in
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dividends to stockholders is held by the
company for growth the amount that is
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kept by the company is called retainer
right so so in this dividend payout
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ratio graph we can see that the Colgate
dividend comes out to 61.78
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okay 61.78% is the is the dividend
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payout ratio for Colgate and for the
company that is Amazon Google and
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Berkshire Hathaway has a 0% dividend payout ratio so you will see
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this rate language so there is a 0% dividend payout ratio which
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means dividend is not paid out to the
stockholders so in this the dividend
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payout ratio is an indicator is an
important indicator of how a company is
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doing financially as we note from above
Colgate dividend payout ratio was 61.78%
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in
2016-17
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however Amazon Google and Berkshire hathway
we haven't paid a benny to the
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shareholders via dividends right now based on
this concept we will have a numerical
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example we will see how it's dividend
payout ratio works and we will do the
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analysis on the same
so in this dividend payout ratio we are
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going to discuss in brief what exactly
dividend payout means does the
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dividend payout ratio say anything about
the growth of in and how would you
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compute dividend payout ratio this is
what we are going to discuss today so
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let's try and understand first what
the dividend payout ratio more in brief
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so a dividend payout ratio is the
percentage of a company's earning that
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it pays out to investor in the form of
dividends it is calculated by dividing
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dividends paid during a period by net
earnings for that period different
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payout rate dividend payout ratio is
reciprocal of retention ratio which
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measures the percentage of earnings of a
company reinvest in a project to
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generate a future growth so we have an
example over here okay so the dividend
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payout we will work on this example so
the dividend payout ratio is an
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important indicator of a company's
performance from an investor point of
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view okay so the formula for dividend
payout ratio is dividend payout ratio
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equals to dividend paid by net income
right so that is the formula so we have
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a formula for a dividend payout ratio
that is dividend paid by net income or
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dividend per share by earnings per share
and the other formula we have is the
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dividend ratio formula that there is one
minus retention ratio right so as
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mentioned above dividend is one portion
of the profit another portion is the
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company keeps for reinvesting into the
expansion of the company is called
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retained earnings and when we compute
the percentage of retained earnings out
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of net income we would get retention
rates so the tension ratio equals to
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retained earnings by net income right so
if you know the net income and retain
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earnings you would easily be able to
find out the dividend ratio of company
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if any just deduct the return earnings
from the net income and divide the
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figure by nothing and you will get the
dividend payout ratio so we have this
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discuss formula let's see what information
we have for the numerical example so
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here we have an example based on the
information given below
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we will calculate and analyze the
dividend payout ratio for say ABC
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Incorporated and x/y/z corporation so all
the amounts are in USD dollars so people
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invest in a company expecting a return
on their investment which comes from 2
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sources 1 is the capital gains and
other is dividend the return from these
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2 sources is interrelated a high
dividend payout ratio means that company
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is reinvesting less earnings in future
project which in turn means less capital
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gain in future periods a means similarly
low payout ratio today may result in a
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higher capital gain in future some
investor prefer companies that provide
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high potential for capital gains while
other prefer companies that pay high
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dividend
dividend payout ratio helps each class of
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investor identify which company to
invest in a dividend payout ratio also
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provides an indication of a company's
future growth potential for it for
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investors that are interested in the
high-growth companies high dividend
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payout ratio may not be a good sign
dividend payout ratios should be
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analyzed in the context of industry and
other ratios such as dividend yield
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ratio or p/e ratio that is price earning
ratio okay so we have the information
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based on ABC and XYZ company both are
NYSE listed company ABC is a
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technology based company and XYZ is an
oil and gas company so as you can see in
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2011 no dividend was paid out to the
shareholder by ABC company and in later
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years in 2012 13 and 14 they paid the
dividend
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similarly XYZ they paid the dividend
throughout the year okay and this
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information that we have that is the
dividend and net income is the crucial
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information to calculate the dividend
payout ratio okay so based on the
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information we have calculated the
dividend
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payout ratio okay so this is the
information that we had for 4 years
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okay so the industry wise we have
calculated the dividend for 2011 till
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2004 0% was in 2011 let's see
the calculation so what we did is
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dividend paid by net income divided by
net again that income gives you 0%
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6% was in 2012, 29% in 2013 and 28%
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in 2014 that's how we have done
the calculation
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similarly XYZ we did the same
calculations based on these formulas
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okay so it was dividend paid by net
income right it is 22% 22%
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in 11 and 12 33% in 30
and 36 percent in 2014
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right that is dividend by net income so
let's interpret what does this figures
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means right so let's first interpret
about the ABC so ABC did not be dividend
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in 2011 because the management believes
that the higher return for investors can
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be achieved if the earnings generated
are reinvested in projects that will
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generate future growth this is supported
by the company's exceptional revenue
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growth in 2012 however during the period
from 2012 till 2014 the company's cash
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file was way above the level needed to
avail the feasible new projects so the
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management paid generous dividends in
this years however in case of technology
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company high dividend payouts are
exceptional and not a rule right so this
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is a technology base so let's see what
interpretation we have for XYZ which is
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an oil and gas okay so A B so the XYZ
corporation on the other hand is in a
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mature industry which is which it is
expected to maintain a steady dividend
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payout and
even increase it over period so XYZ
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payout ratio has over the over in the
range of 23 to 36% in 4 years
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which is pretty stable right so that's
how we complete the calculation and the
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interpretation part for the dividend
payout ratio
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