ratio of cash dividends declared to earnings for the period. It equals dividends per share divided by earnings per share. Stockholders investing for income favor a higher ratio. Stockholders looking for capital gains tolerate low ratios when earnings are being reinvested to finance corporate growth. Assume cash dividends of $100,000, net income of $400,000, and outstanding shares of 200,000. The payout ratio equals 25% ($.50/$2.00).