The meaning of pay-out is the percentage of profits that a company allocates to the payment of dividends. It could also be defined as the dividend per share that a company pays to shareholders between the profit per share of the organization as a percentage.
Pay-out and dividends are closely linked.
¿What is the pay-out?
A pay-out translation into Spanish would be the outflow of money. The formula to calculate the pay out:
Pay-Out = Active dividend distributed or to be distributed / Net profit or after taxes.
When a company is in a period of expansion, it will have to support more important investments, so it is understood that the pay-out will be low as a large part of the profit obtained is retained to finance the activities that promote development.
It is understood that the higher the company's pay-out, the more favorable the profit distribution policy will be among the shareholders. It also achieves an attraction effect among investors, also attracting more financing to make amortize debt or develop investment projects.
On the other hand, a low pay-out does not always have negative consequences. What it shows is that the company has the ability to reinvest dividends in order to capitalize it and create greater financial solvency. At the same time, it will allow a sustained and slow development over time and over time also a high valuation in its price.
This pay-out practice is not carried out by all organizations, but generally those responsible for the contributions make forecasts about the evolution of their pay-out. The distribution of results is carried out by the shareholders' meeting at the proposal of the board of directors and on occasions they may consider that it is more convenient to allocate the amount of the dividend to reserves.