## Monday 7 January 2019

Dividend Payout Ratio (DPR) is a financial ratio used to measure the percentage of net profit distributed to shareholders in the form of dividends to a certain time period (usually 1 year). In other words, this ratio indicates how high the share of benefits provided to shareholders (investors) and a portion of the profits are used to fund the operational continuity of the company.

Dividend payment ratio or Dividend Payout Ratio is very important for investors. Investors who are attracted by short-term profit will prefer to invest in companies that Dividend Payout Ratio has high as for investors who choose to have capital growth will be more interested in investing in the company the Dividend Payout Ratio is low.

Dividend payment ratio is generally different from the one the company with other companies. Companies that older, well established and stable, usually have a high dividend payment ratio. While the company is a start-up or young company and companies that seek growth has a low dividend payment ratio.

Investors usually seek companies that dividend payment ratio that is consistent or improved. But the ratio of dividend payments also should not be too high because the Dividend is to be paid cash (cash) so that will happen on the difficulty of managing cash and liquidity of the company.

## How to Calculate a Dividend Payment Ratio?

Here is how to calculate the dividend payment Ratio (Dividend Payout Ratio) with the formula and example case.

### The Formula of the Dividend Payment Ratio?

Dividend payment Ratio formula can be calculated by dividing the total dividends with the net profit of the company. The following is the formula of dividend payment Ratio (Dividend Payout Ratio):

Dividend Payment Ratio = Total Dividends/Net Profit

Or in the language of the United Kingdom:

Dividend Payout Ratio = Total Dividend/Net Income

The above is a ratio calculation for the overall good dividend payments Total Dividend Total profit or a white garment that is generally report by the company in the financial statements. On the one hand, we can also calculate the ratio of dividend payment per share dividend per share reckoned with by earnings per share. Certainly the calculation ratio dividend payment per share this needs to take into account the dividends per share and earnings per share.

### Example Case Calculation of Dividend Payment Ratio

A restaurant owned by multiple shareholder’s report profits white garment of \$ 100 million. The Restaurant's management then decided to allocate \$ 30 million for dividends and the rest \$ 70 million to buy new equipment for the operations of the restaurant. What is the dividend payment Ratio or Dividend Payout Ratio in the Restaurant?

Note:

Total Dividend = \$ 30 million,-
net income = \$ 100 million,-
Ratio = dividend payments?

The solution:

Dividend payment ratio = Total Dividends/net income
Ratio = Dividend payment of \$ 30 million,-/ \$ 100 million,-the
dividend payment Ratio = 30%

So the Restaurant pays 30% of the net profit to shareholders.

### Analysis and assessment of dividend payment Ratio (Dividend Payout Ratio)

Dividend payment ratio is very important for Investors; this is because most Investors want a sustainable flow of dividends from companies so that a consistent trend in this ratio is usually more important than the high low the ratio was.

This ratio is commonly use to compare ratios in previous years with the current year's ratio. From the comparison investors will assess or pay attention to sustainable trend in this ratio. For example, investors would assume that companies that have a Payout ratio of 30% for 5 years’ eternity would continue. To provide 30% of profit to shareholders a white garment.

In contrast, the ratio of companies that have investors worrying trend will decline. For example, if the dividend payment ratio continued to decline during the last 5 years may indicate that the company can no longer pay high dividends. This could be an indication of a decline in operating performance at the company.

As mentioned previously, the company's older, established stable and tend to have a high dividend payout ratio of the company's new starting (start-up companies) or a company less stable operational performance.