Dividends for Income Investors

Income Investors will be in search of Consistent Dividend payouts from company, What are metrics in finding Dividend Stocks ?

Dividend Payout Ratio is one good statistic measure to show potential Investment pay DPU(Dividend Per UNIT) now and in Future to come. we should also be concerned about both Dividend payments and Capital Appreciation.

Dividend Payout Ratio  =   Dividend per Unit(DPU)  

                                              Earnings per Share (EPS)

Ideal Payout Ratio :  Range of 0% to 35 % Considered a Good Payout and you can consider them Value Stocks

Range of 35% to 75%  Considered a Healthy and Correct from Income Investor Point of View, A company likely to distribute roughly half of its Earnings as Dividends means that Company is well placed and have commanding position in the Industry and also investing half of its earnings to Growth. we Should also note how company raises money, if company raised  money in form of Debt and equity. Debt is issued in form of bonds, a Line of Credit or Secured/Unsecured loans, Companies pay Interest to their creditors before the PAT(Profit after tax) is declared, while Dividends are form of rewarding equity holders paid after PAT declared, with this both providers of capital are paid by the company before holding the remaining profit.

High & Unsustainable Payout Ratio :  Payout ratio exceeding 75% or more than 100% to be marked as bad as company that has minus payout ratio.

Bottom line Income Investors always prefer healthy payout ratios over high payouts, Near term high dividends might be attractive but not sustainable or may not last going forward.