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Stock Dividends / Average Shares Outstanding
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Dividend Payout =
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Net Earnings / Average Shares Outstanding
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Explanation of Dividend Payout:
The Dividend Payout Ratio measures the percentage of Stock
Dividends per share to the Earnings Per Share, showing how the company is
paying for its dividend payout. The dividends paid should be coming from
the earnings the company generates.
Importance of Dividend Payout:
A decreasing Dividend Payout ratio is generally a positive sign,
showing the company is more able to cover its dividend payout with its Net
Earnings. A company in financial trouble may have to use
its own cash to meet its dividend obligations, which may be revealed with this
ratio if the ratio is less than 1.0.
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