Payout ratio is dividends per share divided by eps. It measures the cushion. A 35% ratio leaves room to keep paying through a bad year; a 95% ratio means any earnings wobble forces a choice between borrowing and cutting.
Cash-flow payout is the better version, since earnings include non-cash charges. REITs and utilities run structurally high ratios by design, so the number is only comparable within a sector.
Example: $1.80 of dividends against $3.00 of EPS is a 60% payout. If earnings fall 40% to $1.80, the ratio hits 100% and the board faces a dividend-cut decision within a quarter or two.
Related: dividend-yield, dividend-cut, eps, income-stock