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The dividend payout ratio is a financial metric that measures the proportion of earnings a company distributes to its common shareholders in the form of dividends. Specifically, it is calculated by dividing the dividends paid to common shareholders by the income available to common shareholders. This ratio provides insight into how much of a company’s profit is being returned to shareholders versus how much is being retained for reinvestment in the business.

When examining this ratio, a higher dividend payout may indicate that a company is committed to returning profits to its shareholders, which could be appealing to income-focused investors. Conversely, a lower payout ratio might suggest that the company is opting to reinvest its earnings to fuel growth.

The other options do not accurately reflect the traditional measure of the dividend payout ratio. Dividends to preferred shareholders relate specifically to preference shares, not common shares. The option stating income available to shareholders divided by total payments made does not apply as it fails to focus specifically on dividends in relation to income available to common shareholders. Lastly, while dividends per share and earnings per share are important metrics, their ratio does not directly define the payout ratio in a way that aligns with common financial analysis practices.