Financial Term Explorer
Dividend Payment Ratio
Dividends as percentage of free cash flow. More accurate than payout ratio for measuring actual payment capacity.
📝 Definition
**Dividend Payment Ratio** is dividends paid as a percentage of free cash flow (FCF). More accurate than earnings-based payout ratio for measuring actual payment capacity.
In Simple Terms
Payout ratio uses accounting earnings; payment ratio uses actual cash. No cash = no dividends.
Example
$1 billion FCF, $500 million dividends = 50% payment ratio - healthy.
💡 Practical Tips
- 1Target FCF payment ratio under 70% for safety.
- 2For REITs, use FFO-based ratios.
⚠️ Common Mistakes
Relying solely on earnings-based payout ratio misses cash constraints.
❓ Frequently Asked Questions
Difference between payout ratio and payment ratio?▼
Payout uses net income; payment uses cash flow.