What is the payout ratio?
In short: the payout ratio is the percentage of a company's net profit that it pays to shareholders as dividends. A company earning $1 a share and paying 60 cents in dividends has a payout ratio of 60%. It indicates how much room the company has to keep paying — or raise — its dividend.
How is the payout ratio calculated?
The payout ratio is calculated by dividing dividends per share by earnings per share — or total dividends by net profit — and expressing the result as a percentage. A company earning $2 a share and paying ## How is the payout ratio calculated?.20 in dividends has a payout ratio of 60%. Above 100% means dividends exceed what the company earned.
Payout ratio = dividends per share ÷ earnings per share. Above 100% means paying more in dividends than the company earned.
| Company | Payout ratio (4 October 2026) |
|---|---|
| BHP (BHP.AX) | 69% |
| Commonwealth Bank (CBA.AX) | 76% |
| Wesfarmers (WES.AX) | 84% |
What does it tell you?
A lower ratio leaves room to maintain the dividend through a bad year and to reinvest in the business. A high ratio is normal for mature companies with few growth opportunities — Australian banks and retailers often pay out most of their profit — but leaves less cushion.
Where it misleads
- Profit is not cash. A company can report profit but lack the cash to pay; compare dividends with free cash flow too.
- One bad year spikes it, because earnings fall while the dividend holds.
- Some companies set dividends by policy, such as miners paying a fixed share of earnings, so the ratio barely moves.
How ShareSift uses it
On ShareSift, a payout ratio under 70% is part of the dividend test — together with a yield above 2%, worth 5 of 100 points in the ShareSift value score.
Frequently asked questions
What is a good payout ratio?
Under about 70% is commonly read as a sustainable level, leaving room for a weaker year. Mature businesses with little need to reinvest can sustain more, and Australian banks often pay out over 70%. Above 100% means the dividend exceeds earnings, which cannot continue indefinitely.
Why would a payout ratio be over 100%?
Either earnings fell in a bad year while the company held its dividend, or it is paying from savings or borrowing. A single year above 100% is common after a one-off loss; several years in a row suggests the dividend is likely to be cut.
Sources
- ASIC Moneysmart, Choose your investments — the Australian regulator's guide to assessing investments.
- Company figures: Yahoo Finance via ShareSift, as of 4 October 2026. They change daily.
This information is general in nature and does not take into account your objectives, financial situation or needs. ShareSift is not a financial adviser and does not hold an Australian Financial Services Licence. Companies named are examples of how the measure works, not recommendations. Consider whether any information is appropriate for you and seek independent advice before making an investment decision.