Shareholders and investors need to understand financial concepts about listed companies. One that really interests them is the “payout”: the share of profits that a company “pays out” to them. Below is everything you need to know about payouts.
A payout is the share of profits that a listed company will pay its shareholders. If the payout set out in the company’s shareholder remuneration policy is 50%, the company will distribute half of its net profits among its shareholders. If that policy says the 50% payout should be split between a cash dividend and share buybacks, the formula is:
Payout = (dividend + share buyback)/underlying net profit. The payout is expressed as a percentage.
Remember, a dividend is cash paid to shareholders for their share in the company's profits. A share buyback is when the company “buys back” its own shares to reduce outstanding share capital and increase its share price.
Why do payouts matter to shareholders?
The payout is an indicator that influences an investor’s decision to buy shares in a company. It shows what share of the company’s profits will be paid to shareholders, whether in a cash dividend, a share buyback or both.
A payout policy can also help attract more long-term investment in a listed company. But the company must find the right balance between shareholder returns and reinvesting in its own long-term growth. A payout gives substance to shareholder remuneration policy that influences investors’ decisions.
At our Investor Day in February 2023, we announced our goal to increase shareholder remuneration from the current rate of almost 40% of net profits to about 50%, with almost half in a cash dividend and half in share buybacks. This policy is subject to internal decisions and regulatory approval.