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Dividend Payout Ratio

Definition of Dividend Payout Ratio

The Dividend Payout Ratio refers to dividends paid to shareholders as a percentage of the net income or Earnings Per Share (EPS) of a company. The formula to calculate dividend payout ratio is:

DPR = Dividend / Net income

or

DPR = Dividend / Earnings Per Share

A higher dividend payout ratio means that a company is redistributing a chunk of its profits to shareholders, which generally implies that the company is well-established.

Related Terms

Box Spread

A box spread is a trading strategy that involves buying a bull call spread and a matching bear put spread. The components of a box spread are designed as so:

  • Bull call spread : two call options with a lower and upper strike price
  • Bear put spread : buying and selling puts at different strike prices of the same underlying asset with the same expiration

Liquidity Risk

Liquidity Risk is the potential inability of a company to fulfil its debt obligations. It also refers to the lack of liquidity that an equity share of other financial instruments like commodity futures may carry.

Iceberg Order

An Iceberg Order is used to slice and execute large orders into multiple “legs”. Large orders have the potential to drastically affect stock prices and subsequently investor behaviour.

That’s why institutional investors or traders with a relatively large buy or sell order place an Iceberg Order, thus masking their total transaction value and effectively going under the radar.

Brokers and trading platforms offer Iceberg Orders as a feature, which is activated after a certain quantity of scrips or contracts are selected, typically above 100.

Futexagri

Futexagri refers to the commodity index of futures on NCDEX that’s equal-weighted, meaning all components have equally proportional weights assigned to them, comprised of the futures contracts of the most recent month.

Dividend Reinvestment Plan (DRIP)

A Dividend Reinvestment Plan is a feature where an investor can reinvest the dividends they earn to buy additional shares or units of a mutual fund, either fractional or whole.

Stocks and mutual funds offer Dividend Reinvestment Plans. As a result of reinvesting dividends, investors can add more money to their existing holdings for better compounding. That said, dividends that are reinvested are taxable.

Margin Trading

Margin trading is a strategy that involves borrowing funds from a broker to take bigger positions in stocks, commodities, currencies, futures, or options.



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