Common Stock
A company has earnings per share of $4.00 and pays an annual dividend of $1.00 per share. What is the dividend payout ratio?
Payout ratio = Dividend / EPS. Retention ratio = 1 - Payout ratio.
Complete Analysis & Legal Rationale
The dividend payout ratio is calculated as annual dividend per share divided by earnings per share: $1.00 / $4.00 = 0.25 or 25%. This means the company pays out 25% of its earnings as dividends.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
4% would be the dividend yield if stock price were $25 ($1/$25).
Matches the verified teaching point in the explanation.
75% is the retention ratio (earnings not paid as dividends).
400% would be EPS divided by dividend, which is the inverse of payout ratio.
Official Standard: Outline-level citation pending rule-specific upgrade. Verify against current FINRA Series 7 outline.