A metric for judging DIV sustainability compares amount of $ a company pays out in DIV to earning generated. A high ratio – 80% – could indicate the company may be making payments it can’t afford.
A Dividend payout ratios measures the percentage of company’s net income that is given to shareholders in the form of DIV.
A lower payout ratio is generally preferable to a higher payout ratio, with a ratio greater than 100% indicating the company is paying out more in dividends than it makes in net income.
$1/$10 = 10% so company distributes 10% of its net income as DIV and retains 90% for their operating needs.