Dividend payout ratio — Accounting glossary

For ordinary shareholders, payout can be calculated as ordinary dividends divided by earnings attributable to them, or dividend per share divided by consistently defined earnings per share. Retention is one minus payout when the earnings are either distributed or retained on the same basis. A payout above 100% can occur for a period, for example using accumulated distributable resources, but may not be sustainable. Losses make ordinary percentage interpretation difficult. Payout is different from dividend yield, whose denominator is share price rather than earnings.

Worked example

Earnings attributable to ordinary shareholders are $800,000 and dividends are $240,000. Payout is 30% and retention is 70%. If earnings fall while dividends are held constant, payout rises even without an increase in cash dividends.

Common mistake

Using share price in the payout denominator, or assuming a stable dividend per share means a stable payout percentage.

Where it appears in your exams

Qualification	Exam	Relationship	Period
ACCA	AFM	Supporting	September 2026–June 2027
ACCA	FM	Direct	September 2026–June 2027