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The proportion of earnings paid out as dividends to shareholders, calculated by dividing dividends per share by earnings per share.
A payout ratio of 50% means the company distributes half its earnings as dividends and retains the other half for growth, debt reduction, or buybacks. Payout ratios above 80% may indicate the dividend is unsustainable, especially if earnings decline. Utility companies and REITs often have high payout ratios (60-90%) because they are mature businesses with predictable cash flows. Technology companies typically have lower payout ratios (20-40%) as they reinvest more in growth. A payout ratio above 100% means the company is paying out more than it earns, which is unsustainable long-term and signals a potential dividend cut.