I'm a shareholder in GlaxoSmithKline as I liked the future prospects.

However, I'm going back through the fundamentals and the dividend payout ratio is 1,372.55% which I'm not sure how to interpret. Through my readings, I can recall that anything above 70% should be seen as a warning sign. It seems to indicate that they're clearly paying out far more to shareholders than they should.

Furthermore, if they're paying out more in dividends than earnings then surely they'd be losing money, yielding a negative PE which isn't the case (P/E: 89).

What do you think? A sell sign?

Edit after farnsy's comment: http://finance.yahoo.com/quote/GSK/key-statistics?p=GSK

1 Answer 1


I don't think it makes sense to allow accounting numbers that you are not sure how to interpret as being a sell sign. If you know why the numbers are weird and you feel that the reason for it bodes ill about the future, and if you think there's a reason this has not been accounted for by the market, then you might think about selling. The stock's performance will depend on what happens in the future. Financials just document the past, and are subject to all kinds of lumpiness, seasonality, and manipulation.

You might benefit from posting a link to where you got your financials. Whenever one computes something like a dividend payout ratio, one must select a time period over which to measure. If the company had a rough quarter in terms of earnings but chose not to reduce dividends because they don't expect the future to be rough, that would explain a crazy high dividend ratio. Or if they were changing their capital structure. Or one of many other potentially benign things.

Accounting numbers summarize a ton of complex workings of the company and many ratios we look at could be defined in several different ways. I'm afraid that the answer to your question about how to interpret things is in the details, and we are not looking at the same details you are.

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