CapiCal Industries declared a quarterly dividend of $.56 to its 250,000 common shares from quarterly earnings of $306,250. It has no preferred shares. Universal Hotels declared a quarterly dividend of $.35 to its one million shares on quarterly earnings of $1,225,000, net of preferred shares. Both companies are trading at a P/E ratio around 14. What is the dividend payout ratio for each company?

Question

Quizplus · Accepted Answer

The dividend payout ratio is calculated by dividing the total dividends paid out by the net earnings of the company. For Capical Industries: Total dividends = $0.56 * 250,000 = $140,000; Dividend payout ratio = $140,000 / $306,250 = 0.457 or 45.7%. For Universal Hotels: Total dividends = $0.35 * 1,000,000 = $350,000; Dividend payout ratio = $350,000 / $1,225,000 = 0.2857 or 28.57%. The closest match to these calculations is option B, with Capical at approximately $0.46 and Universal at approximately $0.20.

CapiCal Industries Declared a Quarterly Dividend of