Dividend Payout Ratio Sustainability Calculator
Calculate dividend sustainability with payout ratio, cash coverage, and free cash flow analysis to determine if dividends are secure or at risk.
Total dividends paid per share in the past year
Trailing 12-month earnings per share
Total cash and equivalents per share
Operating cash flow minus capital expenditures per share
What is Dividend Payout Ratio and why does it matter?
Payout ratio shows what percentage of earnings a company pays as dividends. A 50% ratio means half of earnings go to shareholders, half retained for growth. Below 50% is sustainable, 50-80% is moderate, above 80% risks cutting dividends during downturns. High payout means higher yield but less growth; low payout means lower yield but more retained earnings for expansion.
What is a sustainable dividend payout ratio?
Sustainability depends on the business model: Utilities (60-80%), Financials (40-60%), Consumer (40-60%), Tech (20-40%), Energy (40-70%). The key is cash flow, not just earnings. A company can sustain high payouts if: free cash flow covers dividends, earnings are stable/re-growing, debt levels are manageable, and the business model is predictable. Always check cash flow coverage, not just payout ratio.
How can I tell if a dividend is sustainable?
Check these factors: 1) Free Cash Flow payout ratio (should be below 80%), 2) Cash coverage (dividends paid from cash, not just accounting earnings), 3) Dividend history (has it been maintained through downturns?), 4) Earnings growth trend (are earnings increasing to support dividend growth?), 5) Debt levels (can they service debt AND pay dividends?). A company with 100% earnings payout but 50% cash flow payout is a red flag.
What is the difference between earnings payout and cash flow payout?
Earnings payout = Dividends ÷ Net Earnings (easy to calculate, shown in financial statements). Cash payout = Dividends ÷ Free Cash Flow (harder to find, more meaningful). A company can show 60% earnings payout but only 40% cash flow payout - that's sustainable. But if cash payout exceeds 100%, the dividend is at risk. Always check both metrics for a complete picture of sustainability.