No matter how well a company does, shareholders will be disappointed when there is no returns back to them. The returns back to shareholders for investment in companies would be called dividends.

A good company should always have discipline to pay its shareholders dividends during the year.

Therefore, a good metric to look at when sourcing for equities would be good management and one of the indicator is dividend payout ratio. A simple formula of a dividend payout ratio would be taking your dividends for the current year divided by profit for the year.

It would mean how much percentage of profits the company is willing to return back to the shareholders.

In finance, there is another calculation which some believed is a superior calculation to calculate dividend payout ratio using the free cash flow but we will not go into that in this article.

This dividend returns signifies the discipline and appreciation of management to their shareholders.

Even if the company is not paying dividend as it believes the monies used can be used to seek growth to enhance further shareholders’ wealth, we believe certain forms of dividend should be given if company is profitable regardless of percentage of dividend payout ratio.

There is really no point for a shareholder to invest if there is no dividends for an unlisted company.