Payout Ratio

Investors are often attracted to high dividend-yielding stocks for their perceived promise of steady, predictable income. However, what many fail to realize is the nuanced complexity of dividends and the traps that can ensnare the unwary. Two key concepts to understand when considering dividend investing are the payout ratio and the so-called “dividend trap.” The payout ratio is a financial metric that is often used to gauge the sustainability of a company’s dividend payments. It is calculated by dividing the annual dividends paid by a company by its net earnings…