Payout ratio is a measure of what

proportion of

total earnings a

company pays out in

dividends.
It is calculated by dividing the amount of money paid
out as

dividends by the total

earnings
of the company. It is the

inverse of the

dividend
cover.

For example, suppose the company XYZ has earnings of
$150000000 and pays out $20000000 as dividends:

Payout Ratio = Dividends / Total Earnings
= $20000000 / $150000000
= 0.1333
= 13.33%

A company with a high payout ratio can be considered
an "

income investment". A company with a low
payout ratio would probably be a "

growth investment",
because if the company invests the

retained earnings
well, the

share price will go up as the

shareholders
equity goes up.