The dividend record date is the official cutoff set by a company to determine which shareholders will receive the next dividend. If you’re listed as a shareholder on that date, you’re entitled to the dividend.

You must buy a stock before the date of record to qualify for the dividend. You can sell on the record date or later and still get the payout.

With T+1 settlement for stocks and ETFs, the record and ex-dividend dates are the same since stock trades settle one day after the buy or sell transaction.

, and it exists to help companies keep track of who should receive the payout. Because stock ownership changes constantly, companies need a clean snapshot to process dividend payments accurately.

Let’s say a company announces a dividend with a record date of Wednesday, May 14. With the current T+1 settlement rules in the US, your trade must settle by the record date to qualify for the dividend. That means you need to buy the stock no later than Tuesday, May 13.

 You’ll be on record by May 14 (T+1) and receive the dividend.

 You won’t be on the record date list and will miss the payout.

: You are still entitled to receive the dividend.

Since mutual funds don’t trade on exchanges and have different settlement rules, their timing can be slightly different (more on that below).

With T+1 settlement for stocks and ETFs, the record and ex-dividend dates are the same. If you buy a share of stock one day before the 

, the trade will settle in one day, and you’ll be a shareholder of record at that point.

ETFs follow the same rules as US stocks since both trade on exchanges. Their ex-dividend and record dates align with T+1 settlement.

Mutual funds, however, can trade on T+1 or T+2 settlement. In the T+2 scenario, the record date is one day after the ex-dividend date. Here’s an example to demonstrate the timeline, assuming a mutual fund has T+2 settlement and a May 14 record date.

When buying a mutual fund on Monday, May 12, you’d be a holder of record on Wednesday, May 14, thus qualifying to receive the dividend distribution.

Will you get a dividend when selling on the record date?

Yes. As long as you're listed as a shareholder at the close of the record date, you're eligible for the dividend. Selling on the record date does not disqualify you. For example, if you sell a stock or ETF on the record date, that trade wouldn’t settle until one day later, meaning you’re still a registered holder on the record date.

Dividend Record Date: Meaning and Why It Matters

The dividend payout ratio measures the percentage of a company's net income that is distributed to shareholders as dividends. The ratio is calculated as dividends paid divided by net income. It’s a foundational metric for income investors because it shows whether a dividend is well-supported by earnings or at risk of being cut.

This essential ratio also provides investors with a snapshot of a company’s capital allocation strategy. Is the business prioritizing growth by reinvesting profits? Or is it rewarding shareholders with steady income? The payout ratio helps answer these questions, and more.

Dividend Payout Ratio Formula: Example Calculation

There are two primary ways to calculate the dividend payout ratio, at the company level or per share. Let’s walk through both using Microsoft Corporation. (

The company-level method is suitable when you don’t have easy access to individual EPS or dividend per share metrics, only total dividends paid from the cash flow statement and total net income from the income statement.

: Dividend Payout Ratio = Total Dividends Paid ÷ Net Income

In fiscal 2024, Microsoft paid $21.771 billion in dividends and generated net income of $88.136 billion, resulting in a payout ratio of 24.70%.

This figure illustrates that Microsoft is returning approximately a quarter of its earnings to shareholders and retaining the remainder to reinvest in its cloud, AI, and other businesses, to drive revenue and share price growth.

The per-share method utilizes dividends per share and EPS, both of which are commonly found on the income statement.

: Dividend Payout Ratio = Dividends Per Share ÷ EPS

In fiscal year 2024, Microsoft reported EPS of $11.86, and it paid an annual dividend of $3.00 per share, resulting in a 25.29% payout ratio.

Some adjustments are required when a company pays preferred dividends, ensuring that you evaluate only the dividends available to common shareholders. Preferred dividends are contractually obligated payments and take priority over common dividends, so subtracting them gives a more accurate view of how much earnings are available for common shareholders, using the formula as follows:

: Adjusted Payout Ratio = (Dividends - Preferred Dividends) ÷ (Net Income - Preferred Dividends)

However, consider that many companies don’t issue preferred stock, explaining why the company-level and per-share methods are most important to understand.

Why Is the Dividend Payout Ratio Important?

The payout ratio helps investors evaluate dividend sustainability and a company’s capital allocation strategy. A company paying out more than it earns (e.g., over 100%) is likely relying on debt or cash reserves, which is an unsustainable path. Meanwhile, a low payout ratio may indicate several things, including a preference to reinvest profits into growth.

More broadly, the payout ratio can reflect a company’s maturity. Younger firms tend to reinvest heavily, particularly in growth sectors such as 

. In contrast, established giants often return more capital to shareholders, as these companies typically have sparse high-growth investments to pour cash into.

How to Use the Dividend Payout Ratio to Analyze Stocks

When used alongside other financial metrics, the dividend payout ratio becomes a powerful tool for investors to:

: A low to moderate payout ratio (typically 30%–60%) suggests a company has room to maintain or grow its dividend even during economic downturns. Extremely high ratios (above 80%) may signal risk, especially if earnings decline. Compare the payout ratio to a company’s historical average and peers in the same sector for context.

: Companies with low payout ratios are often reinvesting profits to fund expansion, making them appealing to investors seeking long-term capital appreciation. In contrast, high payout ratios may indicate a company prioritizes returning cash to shareholders, which could be better suited for income-focused investors or retirees.

: If a company’s payout ratio is rising while earnings are stagnant or declining, it may be stretching to maintain its dividend. That could signal a potential cut ahead and act as a flag to compare earnings growth trends and free cash flow.

: Use the payout ratio to align holdings with your goals. For example, dividend growth investors may favor firms with rising earnings and stable payout ratios. At the same time, high-yield seekers might accept higher ratios if the business is mature and cash-generative.

The ratio is especially useful when researching dividend kings and dividend aristocrats, which have consistently raised their dividends for decades. Putting each stock through the lens of the payout ratio helps assess dividend growth potential and safety.

There’s no one-size-fits-all number across sectors, but some ballpark rules apply:

 have payout ratios that are low enough to leave room for reinvestment and consistent dividend increases, while also withstanding unforeseen downturns. This flexibility allows companies to continue paying dividends even in lean years, while also funding innovation or expansion initiatives that can drive future earnings and potentially higher dividends, in the long run.

Comparing a company’s payout ratio to its peers provides essential context. Some sectors, such as 

, naturally support higher payout ratios due to their predictable cash flows and regulatory structures. Other sectors, like information technology or 

, prioritize reinvestment and often report lower payout ratios.

Without understanding these norms, a payout ratio might look risky or conservative when it's actually right in line with sector expectations. Here’s a brief overview of some sectors that fall outside of the norms:

 Often have payout ratios of 70% or higher, thanks to stable cash flows

Information technology and biotechnology:

 Typically lower payout ratios, often under 30%, to support innovation and growth

 Payout ratios are often high due to property sales and accounting charges distorting earnings. Most investors use an alternative approach to assessing dividend sustainability by reviewing funds from operations trends.

Beyond the dividend payout ratio, several related metrics offer additional insight into a company's dividend policy and financial flexibility. These ratios differ in focus but work together to give a clearer picture of both the investor's income and the company's earnings management strategy.

 are related because both help assess the attractiveness of dividends. However, while the payout ratio tells you how affordable the dividend is for the company, the yield tells you what return you're getting as an investor. Use dividend yield to compare income potential across stocks and the payout ratio to assess the sustainability of that income.

 Measures how much of a company's earnings are distributed as dividends.

 Reflects how much dividend income investors receive per dollar invested.

The dividend coverage ratio shows how many times a company’s earnings can cover its dividend payments. In many scenarios, a higher coverage ratio indicates a safer dividend. Use this metric when you want to understand dividend security more directly, especially in industries where earnings are volatile.

The retention ratio is the inverse of the payout ratio and measures the portion of earnings a company retains rather than paying out as dividends. It's closely tied to reinvestment strategy and future growth potential. Use this ratio when evaluating a company’s capacity to fund internal projects, repay debt, or build cash reserves.

When reviewing company financial statements, net income, EPS, and dividends per share are typically all included on the income statement. Since the income statement includes both earnings and dividends in per-share form, most investors use the per-share method to calculate the ratio.

You’ll need to review the income statement for total net income and the cash flow statement for dividends paid to calculate the ratio using the company-level method of dividends paid divided by net income.

, we automatically calculate the payout ratio for each stock held in your portfolio, as well as providing the figure for all watchlist stocks.

Portfolio holdings view displaying key metrics, including the payout ratio: Source: Dividend Watch

As of mid-2025, the total dividend payout ratio for S&P 500 companies is 29.38%, according to 

. This balanced level supports both dividend income and earnings reinvestment. Investors can use this benchmark to compare individual stocks against the broader market’s approach to capital returns.

Dividend Payout Ratio: What It Is, Formula, and Why It Matters

The dividend growth rate measures the annualized percentage increase in a company's dividend payments, serving as a critical metric for income-focused investors. This calculation provides key insights into financial health, capital allocation strategy, and profitability, laying the foundation for the dividend discount model used in stock valuation.

Let’s break down exactly how to calculate the dividend growth rate, why it matters, and how to use it to find the 

Dividend Growth Rate Formula: Example Calculation

The simplest dividend growth rate equation follows a straightforward approach that compares dividend payments across different periods. The basic year-over-year formula is:

 = (Current Year Dividend ÷ Previous Year Dividend) - 1

To illustrate this calculation, let's examine The Coca-Cola Company (

 with decades of consecutive dividend increases. Here's Coca-Cola’s recent dividend history and associated growth rates:

For a clearer picture of a company’s dividend trajectory, investors often turn to the compound annual growth rate (CAGR). Unlike year-to-year changes that can be noisy, CAGR smooths out the bumps and offers a more dependable baseline for forecasting future growth.

 = (Ending Year Dividend Beginning Year Dividend) ^ (1/Number of Years) - 1

Take Coca-Cola, for example. Its 3-year dividend CAGR from 2021 to 2024 compounds at a steady 4.9%.

Why is the Dividend Growth Rate Important?

Consistent dividend increases are more than just a feel-good stat. They’re proof that a company can generate real, reliable cash flow through all kinds of market weather. Since dividends reflect actual cash in investors’ pockets, rising payouts offer a tangible sign of long-term value creation.

Dividend growth rates also spotlight how management prioritizes capital, striking a balance between rewarding shareholders and fueling future growth. That’s why this metric is key for evaluating 

, which are prized by income investors for their rock-solid, rising payouts.

Companies with strong dividend growth histories also tend to share a few traits: steady cash flow, competitive strength, and financial discipline. The result? Lower volatility, more stability, and returns with less risk than high-flying growth stocks.

Using the Dividend Growth Rate to Value Stocks

The dividend discount model (DDM) represents the most direct application of dividend growth analysis for stock valuation. This model assumes that a stock's intrinsic value equals the present value of all future dividend payments, making the metric a crucial input for determining fair value.

The Gordon Growth Model, the most commonly used version of the DDM, follows this formula:

 = Next year's expected dividend per share

Let's apply this model to value Coca-Cola shares. Assuming the company’s dividend continues to grow at historical rates, the annual dividend is expected to be $2.04. The stock valuation would be calculated as below using a 9% cost of equity:

 = $2.04 ÷ (0.09 - 0.049) = $2.04 ÷ 0.041 = $49.76

This estimated value gives investors a benchmark. If Coca-Cola’s current share price is below the result, the model suggests the stock could be undervalued based on its dividend growth outlook.

There are several methods for calculating dividend growth, each with its own approach. However, CAGR is the gold standard that smooths out year-to-year fluctuations and offers the clearest view for comparing growth across companies and timeframes. That’s why you’ll see it used most often by analysts and financial sites.

CAGR offers a more accurate representation by calculating the annualized growth rate over multiple periods. Most professional investors prefer CAGR when discussing dividend growth rates because it better reflects the actual compounding effect experienced by long-term investors.

A stock's sustainable dividend growth rate is the maximum rate at which a company can increase its dividend payments over time without compromising its financial health or requiring external financing.

 = Return on Equity × (1 - Dividend Payout Ratio)

The arithmetic average calculates the simple average of year-over-year growth rates over a specific period. This approach provides equal weight to each year's growth rate but doesn't account for compounding effects.

Different sectors exhibit varying dividend growth patterns based on their business models, capital requirements, and competitive dynamics. We’ve provided below a brief overview of ballpark healthy growth ranges for the market’s sectors.

: Traditional telecom companies offer modest but stable growth, while newer media and internet companies may have more volatile dividend policies.

: In this highly cyclical sector with wide variations, some companies suspend dividends during downturns, while others in stable niches maintain steady mid-single-digit growth.

: Companies in the food, beverage, and household product sectors benefit from stable demand patterns and strong brand recognition, enabling consistent cash flow generation and reliable dividend growth.

: The energy sector is extremely volatile and variable, although established players can generate mid-to-high single-digit growth rates.

: Banks and insurance companies typically maintain conservative dividend policies due to regulatory capital requirements, though growth can accelerate during favorable interest rate environments.

: Big pharma and medical device manufacturers benefit from patent protection and demographic trends that can generate high growth rates.

: Manufacturing and infrastructure companies typically offer steady dividend growth that aligns with economic expansion, although cyclical exposure introduces some volatility.

: Chemical and mining companies typically offer moderate dividend growth that correlates with commodity cycles and global economic demand.

: These companies tend to focus on high current yields rather than aggressive dividend growth.

: The tech sector features some rare, established dividend payers with high initial growth rates of 10% or more annually, while others adopt more conservative approaches that funnel profits into revenue growth rather than issuing dividends to shareholders.

: Companies in the sector benefit from regulated business models and predictable cash flows but face significant capital investment requirements that limit aggressive dividend growth.

Dividend stock analysis becomes most effective when combining the dividend growth rate with other dividend-related metrics. The supporting figures detailed below provide context, uncover hidden risks, and highlight opportunities that raw growth rates may overlook.

 measures the percentage of a company's earnings that is paid out as dividends. Companies with low payout ratios (below 60%) have more flexibility to grow their dividends at higher rates, while companies with high ratios (above 80%) may face constraints during challenging periods.

 can exhibit an inverse relationship to dividend growth rates. Companies with high current yields may have limited growth potential, while companies with lower yields might offer superior growth prospects.

The ratio of dividends per share to free cash flow per share reveals a company's ability to fund dividends without external financing, providing insights into dividend sustainability. This figure is an iteration of the dividend payout ratio, which uses earnings per share instead.

 automates calculating dividend growth rates for stocks in your portfolio and on your watchlists.

Dividend growth rates are automatically calculated for all of your portfolio holdings inside our tracker. Source: Dividend Watch

Dividend growth rates are one of the key dividends-focused metrics automatically calculated in your custom watchlist. Source: Dividend Watch

For manual calculation, there are two ways to calculate the ratio. The statement of cash flows displays actual dividend payments in the "Payments of dividends" line item under the financing activities section, which helps calculate the growth rate based on total dividends paid.

The income statement often includes a section for dividends per share, providing an alternative to total dividends paid, as shown on the statement of cash flows.

A healthy dividend growth rate generally ranges from 3% to 10% annually for established companies. Dividend aristocrats typically achieve long-term growth rates between 4% and 8%. Growth rates above 15% annually should warrant additional research into sustainability.