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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Stocks

In the context of equity share valuation, the dividend payout ratio of a company is best defined as:

The dividend payout ratio is dividend per share divided by earnings per share. It shows what portion of the company's earnings is paid out to shareholders as dividends. Dividend divided by market price is the dividend yield, a different measure.

  1. ADividend per share divided by market price per share
  2. BDividend per share divided by earnings per shareCorrect
  3. CRetained earnings divided by total net worth
  4. DNet profit divided by total number of shareholders

Explanation

The dividend payout ratio shows the proportion of earnings distributed to shareholders, calculated as DPS divided by EPS. Dividend per share divided by market price is the dividend yield, which is why the first option is wrong.

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