i What this calculator does
The payout ratio is the share of earnings paid out as dividends. Its inverse, dividend cover, says how many times the profit covers the payment, and both answer the same question: is the dividend affordable.
What is left over is retained and funds growth. The sustainable growth rate, retention multiplied by return on equity, is the rate a company can grow at without raising new capital, which links dividend policy directly to future earnings.
This calculator is for educational purposes only. Results are estimates and may vary depending on market conditions, spreads, commissions, platform settings, and exchange rates. It should not be considered financial advice.
How to use the Dividend Payout Ratio Calculator
Every field has a working default, so the calculator produces a result the moment the page loads. Replace the defaults with your own figures and the output updates when you press the button.
- 1. Dividend Per Share (R)
- 2. Earnings Per Share (R)
- 3. Free Cash Flow Per Share (R) Cash cover is the stricter test
- 4. Return on Equity (%) For the sustainable growth rate
The result panel reports:
- Payout Ratio Share of earnings paid out
- Dividend Cover Earnings over dividend
- Cash Cover Free cash flow over dividend
Alongside the headline figures, the calculator reports dividend per share, earnings per share, retention ratio, sustainable growth rate. Those are the numbers that usually explain why the headline result came out where it did.
The breakdown below the result shows every step of the arithmetic, so you can check the figure rather than trust it. The formula panel names each input as it is used, which is useful if you want to reproduce the calculation in a spreadsheet.
Frequently asked questions
What payout ratio is sustainable?
It depends on the business. A utility with predictable cash can sustain 70% or more; a cyclical miner cannot. As a general guide, above 75% leaves little margin for a weak year, and above 100% means the dividend is being funded from somewhere other than profit.
What is dividend cover?
The payout ratio inverted: earnings divided by the dividend. Cover of 2 means profit is twice the dividend, which is the traditional comfort level. Below 1.5 the dividend becomes sensitive to a small drop in earnings.
Why does cash cover matter more?
Because dividends are paid in cash, not in earnings. A company can report a profit while free cash flow is negative, and in that case the dividend is funded from debt or from the balance sheet. Cash cover catches that; earnings cover does not.
What is the sustainable growth rate?
The retention ratio multiplied by return on equity. It is the rate a company can grow at using only retained profit, without issuing shares or taking on more debt. A company promising growth well above it will need outside capital to deliver.
Do REITs have different rules?
Yes. South African real estate investment trusts must distribute the large majority of their distributable income to keep their tax status, so payout ratios near 100% are normal and not a warning. The relevant measure for them is distributable income rather than accounting profit.
Does a rising payout ratio signal trouble?
Often, if it rises because earnings are falling rather than because the dividend is growing. A company that holds its dividend through a downturn shows a rising payout ratio, which is usually a prelude to a cut if the downturn persists.
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