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Updated 2mo ago.
Updated 2mo ago.
The payout ratio is the percentage of a company's earnings paid out to shareholders as dividends. A ratio of 50% means the company distributes half its profits and reinvests the other half. A ratio that is too high (>100%) may signal an unsustainable dividend.
Canadian banks in ZEB.TO (BMO Equal Weight Banks) typically have a payout ratio between 40% and 60%, which is considered healthy — they retain enough profits to grow while paying regular dividends. In contrast, a covered call ETF like ZWB.TO may have a high payout ratio because income comes partly from option premiums, not just earnings.
The payout ratio helps you assess whether an ETF's or stock's dividends are sustainable. A ratio that's too high may look attractive in the short term (big dividend), but it increases the risk of a dividend cut. For beginner investors seeking income, a moderate ratio (40-70%) is generally a sign of financial health.