Good point you make. I believe the general rule of thumb is that
younger rapidly growing companies redeploy capital into the business,
then at some point when growth prospects slow, initiate a dividend. As
the business matures, more money may be paid out, and a 50% payout
ratio is not unusual.
Payout ratios also vary by industry, generally by the stability or
predictability, of revenues. Another way of saying that is
inelasticity of demand. 'Inelastic' means in good times or bad, people
will still demand products such as electricity, water, and food, but
may put off buying a new car (or new house).
Today's mess with incentive options and stock buybacks makes the
dividend picture a little more difficult, but the rate of increase in
dividends is significant, and any increase is predicated upon an
increase in earnings. IMO you are correct about the im****tance of the
payout ratio. It is likely that the payout ratio will vary more than
the actual dividend, as earnings fluctuate, but a 50% ratio is
probably a really good ballpark number.
On Mar 14, 4:08 pm, jIM <noreplysoc...@[EMAIL PROTECTED]
> wrote:
> On Mar 14, 12:42 pm, "W. Wells" <ot...@[EMAIL PROTECTED]
> wrote:
>
> > Where is a good place to check the ability of a company to continue
paying
> > its dividend?
>
> I think the metric is payout ratio- percent of profits paid out. The
> lower the better, with some latitude (maybe not as low as possible,
> but if a company pay out 50 cents of every dollar of profit, there is
> a possibility that lack of reinvestment into the business will hurt
> the dividend down the line).
>
> I would also look for dividend history- some stock charts show how
> often the dividend price changes over time.
>
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