Answer Overview
The payout ratio (also called the dividend‑paying ratio) measures what share of a company’s earnings is being returned to shareholders as cash dividends. It is calculated as:
[
\text{Payout Ratio} \;=\; \frac{\text{Dividends per Share (or total dividends)}}{\text{Earnings per Share (or total earnings)}}\times 100\%
]
Because the press release only tells us the new dividend amount – $0.18 per share – and that this represents a 13 % increase over the prior‑year dividend, we do not have the other piece of the equation (the company’s earnings per share or total net income). Without that figure we cannot compute a precise payout ratio for the most recent quarter (or for the full year, if you prefer to use annualized numbers).
Below is a step‑by‑step guide on how you can determine the payout ratio, followed by a discussion of what the result would typically look like in the water‑management / storm‑water / onsite‑wastewater industry, so you can gauge whether the ratio “aligns with industry norms” once you have the necessary data.
1. How to Calculate the Payout Ratio for Advanced Drainage Systems (ADS)
| Data Needed | Where to Find It | How to Use It |
|---|---|---|
| Dividends per share (already known) | $0.18 per share (quarterly) | This is the numerator of the ratio. |
| Earnings per share (EPS) for the same period (quarter) | ADS’s Form 10‑Q (quarterly filing) or the “Management Discussion & Analysis” (MD&A) section of the latest earnings release. The EPS figure is usually presented as “Net earnings per diluted share.” | |
| Alternatively, total net income for the quarter (or year) and total shares outstanding | Total net income is on the income statement of the 10‑Q (or 10‑K for annual). Shares outstanding are disclosed in the balance sheet or in the “Capital Stock” footnote. | |
| If you want an annualized payout ratio | Multiply the quarterly dividend by 4 (or use the declared annual dividend if the company has announced it) and compare it to the most recent annual EPS (from the 10‑K). | [ |
\text{Payout Ratio (quarterly)} = \frac{0.18}{\text{Quarterly EPS}} \times 100\%
]
or
[
\text{Payout Ratio (annual)} = \frac{0.18 \times 4}{\text{Annual EPS}} \times 100\%
] |
Example (illustrative only):
If ADS reported a quarterly EPS of $0.90, the payout ratio would be:
[
\frac{0.18}{0.90} \times 100\% = 20\%
]
If the annual EPS were $3.60, the annualized payout ratio would be the same 20 % (since $0.18 × 4 = $0.72 and $0.72 / 3.60 = 20 %).
You will need to replace the EPS numbers with the actual values from ADS’s filings to obtain the real ratio.
2. Industry Context – Typical Payout Ratios in the Water‑Management / Storm‑Water / On‑Site Wastewater Space
| Sector | Typical payout‑ratio range | Key considerations |
|---|---|---|
| Utilities & Water‑Infrastructure (including storm‑water and wastewater) | 30 % – 60 % (most peers fall between 35 % and 55 %) | Companies in this space tend to have relatively stable, regulated cash flows, allowing them to return a moderate portion of earnings while still retaining enough capital for ongoing infrastructure investment, maintenance, and growth. |
| Pure‑play wastewater‑treatment firms | 25 % – 50 % | Heavy capital‑expenditure (CapEx) cycles can push some firms to keep payout ratios below 40 % to fund plant upgrades and compliance projects. |
| Diversified water‑management firms (e.g., combined storm‑water, drainage, and irrigation) | 35 % – 55 % | The mix of recurring service contracts and product sales creates a balanced earnings profile, supporting a payout ratio in the mid‑40 % range. |
What this means for ADS:
If ADS’s payout ratio after the dividend increase ends up below ~30 %, the dividend could be viewed as conservative—the company is retaining a larger share of earnings for reinvestment, which is common for firms with sizable upcoming CapEx programs.
If the ratio lands between 30 % and 60 %, it would be well‑aligned with the norm for water‑infrastructure peers, indicating a balanced approach between rewarding shareholders and funding growth.
A ratio exceeding 60 % would be relatively generous for the sector and might raise questions about whether the firm has enough retained earnings to sustain its capital‑intensive business model, especially if it is planning new drainage‑system projects or regulatory upgrades.
3. How to Assess Alignment Once You Have the Ratio
- Compare to direct competitors – Look at the payout ratios of publicly listed peers such as:
- Aqua America (WTRG)
- Badger Meter (BMTR)
- Xylem Inc. (XYL)
- Covanta Holding Corp. (CVA) (if they have wastewater‑treatment assets)
Most of these companies publish their quarterly and annual payout ratios in their earnings releases or investor presentations. If ADS’s ratio falls within the same band, it is “aligned.”
Check the company’s growth‑capital plan – ADS’s 2024‑2025 Investor Presentation (or the “Capital Allocation” section of the 10‑K) often outlines expected CapEx spend for new drainage‑system installations, R&D, and acquisitions. A payout ratio that still leaves ≥ 40 % of earnings after dividends is generally sufficient to meet those plans.
Historical trend – ADS previously paid $0.16 per share (13 % lower). If the prior payout ratio was, say, 35 %, the new dividend would push it to roughly 40 %—a modest increase that still tracks the company’s historical policy of gradually raising shareholder returns while preserving capital.
4. Bottom‑Line Recommendation
- Action needed: Retrieve ADS’s most recent EPS (quarterly or annual) from its SEC filings (Form 10‑Q for the quarter ending June 2025, or Form 10‑K for the full‑year 2024/2025).
- Calculate the payout ratio using the formula above.
- Benchmark the result against the 30 %–60 % range typical for water‑management and wastewater‑industry peers.
If the calculated payout ratio falls within that range, you can confidently state that the dividend increase aligns with industry norms. If it is outside the range, you can discuss the potential reasons (e.g., unusually high retained earnings, aggressive growth spending, or a strategic shift toward higher shareholder returns).
Quick Checklist for You
| ✅ | Step | What to Do |
|---|---|---|
| 1 | Find EPS | Look up ADS’s latest Form 10‑Q (quarter) or Form 10‑K (annual) on SEC.gov. |
| 2 | Compute Ratio | Apply (\frac{0.18}{\text{EPS}}\times100\%) (quarter) or (\frac{0.18\times4}{\text{Annual EPS}}\times100\%). |
| 3 | Industry Compare | Pull payout ratios of 3–5 direct competitors from their earnings releases. |
| 4 | Interpret | If 30‑%–60 % → “aligned”; below 30 % → “conservative”; above 60 % → “generous, may need scrutiny.” |
| 5 | Contextualize | Review ADS’s capital‑expenditure outlook to ensure retained earnings are adequate. |
Final Thought
Until the EPS figure is known, any precise payout‑ratio number would be speculative. However, the methodology and industry benchmarks provided above will let you quickly determine whether the new $0.18 quarterly dividend represents a payout ratio that is typical for a water‑management leader like Advanced Drainage Systems. Once you plug in the actual earnings data, you’ll have a solid, data‑driven answer to the question of alignment with industry norms.