A dividend-focused investor may need steady cash income for living expenses, which means the investor’s investing priorities are less concerned with capital gains. It is up to the investor to decide what kind of dividend payout ratio is most attractive to specific investing needs. Firms under these classifications will always pay a high percentage of their earnings towards dividends. The payout ratio should not be applied to MLPs, Trusts, or REITs as they have a unique financial structure and are obligated to pay out most of their earnings as dividends. There are even times when investors should ignore dividend payout ratios all together, as certain companies will always have unusually high numbers. Investor need to know whether a potential investment is a growth stock or a dividend stock in order to properly comprehend its dividend payout ratio. The more mature, established companies do not focus on such growth, so they will be more willing to pay the higher dividends. Also, some companies, especially new ones, will prefer to have a lower dividend payout ratio in order to retain earnings that can be utilized for future company growth. Typically, older and more mature companies will tend to have a higher payout ratio as they have the financial capabilities to payout more to shareholders. Investors need to realize that not all companies’ dividend payout ratios should be examined the same.

$2.59 per share) are examined more closely, it becomes apparent that AT&T’s dividend is actually sustainable.Īs the above examples depict, the dividend payout ratio will be different for different firms in different industries with different financial situations. But if the earnings outlook for AT&T in fiscal year 2012 (approx. This figure is obviously alarming at first. That means that the firm had a backward-looking dividend payout ratio of around 230%. However, its 2011 earnings (the last reported full year at the time) were 77 cents per share. For example, telecommunications giant AT&T ( T ) boasted an annual dividend payment of about $1.76 in 2012. This forward-looking strategy can make a backward-looking dividend payout ratio seem bloated, but in actuality the financial situation will be able to support the payout level without a problem. Since companies look at future earnings expectations to determine their dividend policy, shouldn’t investors do the same? However, to determine the viability of the dividend payment, a company looks towards future earnings, not previous ones.

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