Comparisons to actual or normalized earnings the

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Unformatted text preview: ends is to compare the dividends paid in the most recent period to the earnings in the period. The ratio of dividends to earnings is the payout ratio and Figure 2.7 below presents the distribution of dividend payout ratios in the most recent financial year for U.S stocks in October 2002. 31 Figure 2.7: Dividend Payout Ratios - U.S. Stocks in October 2002 350 326 firms with negative earnings paid dividends 300 Number of firms 250 200 150 firms paid out more in dividends than they earned 150 100 50 0 Negative 0.01-10% 10-20% 20-30% 30-40% 40-50% 50-60% Payout Ratio 60-70% 70-80% 80-90% 90-100% >100% Data from Value Line: The payout ratio is the dollar dividend paid out as a percent of the net income. If the net income is negative, the payout ratio cannot be calculated. A firm that has a dividend payout ratio greater than 100% paid out more than its earnings as dividends at least in the most recent financial year. If its earnings do not recover promptly, this is clearly unsustainable for the long term and can have significant accounting and econo...
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This note was uploaded on 01/17/2012 for the course ECON 101 taught by Professor Econnorm during the Spring '11 term at Art Institutes Intl. Minnesota.

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