Glossary · Stocks and markets
Payout ratio
The payout ratio is the share of a company’s profit that it pays out to its shareholders as dividends.
Also called: dividend payout ratio, dividend payout, dividends ÷ earnings
Dividends ÷ earnings, last 12 months, Jun 2026. Median since 1871: 57%.
In plain words
A bakery earns $100,000 of profit in a year. Its owners take $40,000 home and leave $60,000 in the business for a new oven. They paid out 40% of the profit: a payout ratio of 40%.
For a company it is dividends paid ÷ profit or, per share, the dividend per share ÷ earnings per share. A company earning $5 a share and paying $2 has a payout ratio of 40%.
For the S&P 500 as a whole it is 28% now (Jun 2026), against a median of 57% since 1871.
Example
Two companies, the same dividend
- Steady Co. earns $4 a share and pays $2: a payout ratio of 50%. Half the profit stays to grow the business.
- Stretched Inc. earns $2.10 a share and also pays $2: a payout ratio of 95%. Almost nothing is left over.
- A bad year cuts both companies’ profits by 30%. Steady earns $2.80 and can still pay $2 (71%). Stretched earns $1.47; paying $2 now means paying out 136% of its profit.
The same dividend, very different safety: the payout ratio shows how much room a dividend has.
One level deeper
Companies change dividends slowly and profits change fast, so when profits collapse the payout ratio shoots up. In the financial crisis, S&P 500 earnings per share fell 92% from Jun 2007 to Mar 2009. Dividends were cut far less, and the payout ratio peaked at 397% in Mar 2009.
Over the decades, US companies have paid out a smaller share of their profits as dividends and returned more cash through share buybacks, which the payout ratio does not count. Adding buybacks gives a total payout ratio. The lowest dividend payout ratio since 1871 was 28%, in Jun 2026.
A low payout ratio is not bad in itself: a fast-growing company may do better by reinvesting. A ratio above 100% year after year is a red flag, unless profits are only temporarily depressed. Some businesses, such as REITs, must by law pay out most of their income.
The S&P 500’s payout ratio since 1871
Dividends of the last 12 months divided by earnings of the last 12 months. The spikes are not generous years: they are years when profits collapsed while dividends held, as in 1921, the early 1930s and 2008–09. Since the 1980s the ratio has drifted lower, as buybacks took a growing share of the cash handed back.
The numbers behind the chart
| Date | Payout ratio |
|---|---|
| Jan 1871 | 65% |
| Dec 1880 | 53% |
| Dec 1890 | 76% |
| Dec 1900 | 62% |
| Dec 1910 | 64% |
| Dec 1920 | 64% |
| Dec 1930 | 101% |
| Dec 1940 | 64% |
| Dec 1950 | 52% |
| Dec 1960 | 60% |
| Dec 1970 | 61% |
| Dec 1980 | 42% |
| Dec 1990 | 57% |
| Dec 2000 | 32% |
| Dec 2010 | 29% |
| Dec 2020 | 62% |
| Dec 2022 | 39% |
| Dec 2023 | 36% |
| Dec 2024 | 36% |
| Dec 2025 | 33% |
| Jun 2026 | 28% |
Why it matters
It shows how safe a dividend is: the lower the ratio, the further profits can fall before the dividend is at risk.
It shows a company’s choice between paying its owners now and investing for later.
For the whole market, it helps explain why dividend yields are lower than they used to be.
A common mistake
Myth: A high payout ratio means a generous, shareholder-friendly company.
In fact: It may just mean profits have fallen. A ratio near or above 100% leaves no room for a bad year, and a dividend paid with borrowed money can be cut suddenly.
Questions people ask
What is a good payout ratio?
It depends on the business. Steady, mature companies often pay out 40% to 60% of their profit; fast growers pay little or nothing. For the S&P 500 the median since 1871 is 57%.
Can a payout ratio be over 100%?
Yes: the company pays out more than it earned, from cash it had saved or from borrowing. It happens in bad years. For the S&P 500 the ratio was above 100% for 6 years in all since 1871.
How is the payout ratio calculated?
Dividends per share ÷ earnings per share over the same 12 months. Some analysts use free cash flow instead of earnings, because dividends are paid in cash, not in accounting profit.
Read more on BigCapital
About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- S&P Composite (price, dividends, earnings, CAPE), US consumer prices and the 10-year Treasury rate: Robert J. Shiller, Online Data (shillerdata.com).
- This page explains a term. It is not investment advice.