# Dividend Payout Ratio Calculator

> The payout ratio is dividends divided by earnings. Below about 60% is comfortable for most industries; above 100% the company is paying out more than it earns, which rarely lasts. The free-cash-flow version is stricter and often more telling, because dividends are paid from cash, not accounting profit.

Formula: payout ratio = dividends / net income. Below ~60% comfortable; above 100% unsustainable. FCF payout ratio = dividends / free cash flow.

## Formula
Payout ratio = Dividends ÷ Net income × 100%. FCF payout ratio = Dividends ÷ Free cash flow. Enter per-share figures or company totals; the ratio is the same either way.

## Earnings vs. free cash flow
Accounting earnings include non-cash items and can be smoothed. Free cash flow is what is actually left after running and maintaining the business. A dividend covered by earnings but not by free cash flow is being paid with borrowed money or drawn-down reserves, so check both.

## Sector norms
Utilities, telecoms and real estate investment trusts routinely pay out 70 to 90% of earnings because their businesses are stable and, for REITs, the structure requires it. A technology company at 80% would be a warning. Judge the ratio against the sector.

## What a rising ratio means
If the payout ratio climbs year after year, dividend growth is outrunning earnings growth. That can continue for a while, but eventually raises slow or stop. The healthiest dividend growers hold the ratio roughly steady while both lines rise.

## FAQ
**What is a good payout ratio?** Below 60% of earnings is comfortable for most companies. Between 60 and 85% is normal for stable, mature businesses. Above 100% is a red flag unless earnings are temporarily depressed.

**Can the payout ratio be over 100%?** Yes. It means the company paid more in dividends than it earned. It can happen for a year or two after a one-off charge, but sustained, it usually precedes a cut.

**Where do I find the numbers?** Dividends per share and earnings per share are in the annual report and on any stock page. Free cash flow is operating cash flow minus capital expenditure from the cash flow statement.

Use the interactive version at https://foliofundamentals.com/tools/payout-ratio-calculator. Related: [Dividend investing guide](https://foliofundamentals.com/learn/dividend-investing-guide), [Free cash flow explained](https://foliofundamentals.com/learn/fcf), [Dividend yield calculator](https://foliofundamentals.com/tools/dividend-yield-calculator).