Dividend per share, yield and payout ratio: judging whether a dividend is safe

Three related measures

• **Dividend per share (DPS)** — total dividends declared divided by shares outstanding.
• **Dividend yield** — DPS divided by the share price, as a percentage. The cash return on the current price.
• **Payout ratio** — DPS divided by EPS, as a percentage. The share of earnings handed back rather than reinvested.

How to read them together

A high yield with a payout ratio above 100 percent means the dividend is being paid out of reserves or borrowing, not earnings. That is sustainable for a year, rarely for three. A modest yield with a payout ratio near 30 percent usually signals a business funding its own growth.

The yield trap

Yield rises when the price falls. A yield that jumps from 4 to 9 percent without a dividend increase is the market pricing in a cut, not a gift. Always check why the denominator moved.

The cash test

Earnings are accruals; dividends are cash. Compare dividends paid against free cash flow, not just profit. A business reporting healthy EPS while operating cash flow is negative is funding distributions from the balance sheet.

Policy matters

Progressive policies commit to a rising dividend, which constrains capital allocation. Cover-based policies target a payout ratio and let the absolute dividend move with earnings. State which policy applies before comparing yields across companies.

Recording dividends

Dividends and share counts are board decisions, not ledger postings you can infer. NanoFora takes total dividends paid or a stated dividend per share from the Share data screen, then calculates DPS, yield and payout against the posted result and the share price, showing each input. Anything missing is reported as not calculable. Read earnings per share next.