Lesson 11 of 21 · Earnings & Expectations · 1 min read
Dividends
intermediate
Cash a company pays out directly to shareholders, and how to tell a healthy payout from an unsustainable one.
Dividend Yield is the annual dividends paid over the last 12 months as a percentage of the current stock price — income on top of whatever the stock's price does. Payout Ratio is dividends paid as a percentage of earnings, and is the key number for judging whether a dividend is actually sustainable.
A rising yield isn't always good news — sometimes the price just fell faster than the dividend.
Dividend Yield (TTM)
Trailing 12-Month Dividends / Current Share Price
A very high yield (above roughly 6%) may signal the market doubts its sustainability — a falling share price mechanically pushes yield up even if the dividend itself hasn't changed.
Payout Ratio
Dividends Paid / Earnings
Below 60% is generally sustainable with room to grow. Above 80% is high and limits reinvestment. Above 100% means the company is paying out more than it earns.
Where Payout Ratio typically lands
Sustainable — room to reinvest or absorb a bad quarter
Strained — little cushion if earnings dip
Key takeaways
- A rising share price alone can push yield down, and a falling one can push yield up — neither necessarily means anything changed about the dividend itself. Always check whether the *dollar amount* paid actually changed.
- A payout ratio consistently above 100% means the company is funding dividends from debt or cash reserves, not current earnings — not sustainable indefinitely.
- Cutting a dividend is a strongly negative signal in practice (markets tend to punish it disproportionately), which is part of why some companies keep paying even when a payout ratio suggests they probably shouldn't.