Payout ratio

A stock’s payout ration measures how much of a company’s profit is paid out in dividends.

A company earning $2 per share in profits and paying out $1 share in dividends has a payout ratio of 0.5 ($1 divided by $2)

Forward-looking payout ratio:

The latest quarterly dividend payment for X is $0.50 per share.

Thus, the annual indicated dividend is $ 2 ($0.50 x 4 quarters)

The analysts’ consensus earnings estimate for the fiscal year is $4 per share

Thus, the forward-looking payout ratio would be 0.5 ($2 in per-share dividend/ $4 in per-share profits)

Source: The little book of Big Dividends – A safe formula for guaranteed returns (by Charles B. Carlson)