I am always keen on learning new knowledge on investments as part of my retirement plan – and recently came across a video from CF Lieu (YouTuber that covers investment topics) that talks how to identify non-sustainable dividend payout company in Bursa Malaysia. The concept is called Dividend Payout Ratio.

What is Dividend Payout Ratio
The Dividend Payout Ratio is an important financial metric used by investors to evaluate how much of a company’s earnings are returned to shareholders in the form of dividends. In summary, it is the percentage of earnings paid to shareholders via dividends.
Dividend Payout Ratio is calculated by dividing Annual Dividend Per Share (DPS) by Earning per share (EPS). Example of Public Bank in year 2021, earning per share is 29.1 and dividend per share is 15.2 and the Dividend Payout Ratio will be 52.2 (15.2/29.1*100).
The dividend payout ratio indicates how much of a company’s net earning is paid out as dividends and dividend yield is the rate of return of cash dividends back to the shareholders.
According to CF Lieu (in the YouTube video), below are the category of dividend payout ratio:
- GOOD: 1% to 35%, typically it is term as “value” stocks, or low P/E ratio. This type of company will retain much of their earning to grow the business
- GREAT: 35% to 55%, usually is the well established blue chip stocks which return part of the earning as dividends to the shareholder and at the same time retain the other part to grow the business
- HIGH: 55% to 75%, it is great for dividend investor for short term only as it leaves not much earnings to expand the business
- VERY HIGH: 75% to 95%, almost all the money declared as dividends, which could indicate the company reached saturation or stagnation stage
- LOSS MAKING: 0% or < 0%, which could indicate loss making company
- UNSUSTAINABLE: 95% to 150%, it means they distribute more money that what they earning, which make it non-sustainable
Why Dividend Payout Ratio Metric is Important
- Income Generation: The ratio gives insight into how much income shareholders receive. Higher payout ratios can indicate generous returns for dividend-focused investors.
- Company Stability: Established companies often have higher payout ratios, as they can afford to distribute a large portion of profits without sacrificing growth.
- Growth vs. Dividend Balance: Companies with lower payout ratios often reinvest profits for expansion rather than returning them as dividends, appealing to investors interested in long-term growth.
Interpreting High and Low Ratios
- High Dividend Payout Ratio: Generally means a company is returning a significant portion of its profits to shareholders. However, a super high payout ratio—often above 80%—can indicate that the company has limited funds for reinvestment, which might hinder future growth.
- Low Dividend Payout Ratio: Suggests that the company retains more of its earnings, often to fund new projects or pay off debt, which may contribute to growth. This ratio appeals to investors who prefer capital gains over dividends.
Balancing Dividend Income with Long-Term Growth
In summary, while a super high dividend payout ratio can be attractive to income-focused investors seeking regular returns, it’s essential to weigh the potential downsides. High payout ratios might signal a lack of reinvestment, which could impact a company’s growth and resilience in the long run. Investors should consider their own financial goals, risk tolerance, and the company’s overall stability before prioritizing dividends over growth potential. By carefully evaluating these factors, investors can make more informed decisions that align with their long-term objectives.
The information provided by bryankoh.com is meant for educational purposes and as a blog to track what I have learned, and at no instance to be regarded as investment advice. You are advised to practise due diligence before making any financial decisions. BryanKoh.com are not liable for any losses incurred from your investment activities. All forms of investments carry risks. Such activities may not be suitable for everyone. Past investment performance is not necessarily indicative of future performance, even if the same strategies are adopted.