The dividend payout ratio, or the percentage of net income paid out to shareholders in the form of a dividend (Dividends paid/Net income), is used by some investors to identify securities to add to their portfolio of investments. For example, in recent years, the dividend payout ratio for the Procter & Gamble Company averaged 37.6 percent, Johnson & Johnson averaged 36.4 percent, and for Pfizer, Inc. averaged 68.7 percent. Discuss whether having a high payout ratio (such as Pfizer, Inc.) is a good strategy for a company. What type of investor would prefer a high payout ratio versus a low (or zero) payout ratio?
What does a high payout ratio suggest about a company’s future growth prospects?