Theoretical Economics Letters, 2015, 5, 441-445 Published Online June 2015 in SciRes. http://www.scirp.org/journal/tel http://dx.doi.org/10.4236/tel.2015.53051 How to cite this paper: Hasan, M., Ahmad, M.I., Rafiq, M.Y. and Rehman, R.U. (2015) Dividend Payout Ratio and Firm’s Profitability. Evidence from Pakistan. Theoretical Economics Letters, 5, 441-445. http://dx.doi.org/10.4236/tel.2015.53051 Dividend Payout Ratio and Firm’s Profitability. Evidence from Pakistan Mudassar Hasan 1 , Muhammad Ishfaq Ahmad 2 , Muhammad Yasir Rafiq 3 , Ramiz Ur Rehman 4 1 Lahore Business School, The University of Lahore, Lahore, Pakistan 2 Public Administration and Law School, Liaoning Technical University, Fuxin, China 3 Government Islamia College of Commerce, Lahore, Pakistan 4 Lahore Business School, The University of Lahore, Lahore, Pakistan Email: mudassarhasan84@yahoo.com , m_ishfaq452@yahoo.com , yasir.stats@gmail.com , ramiz_rehman@hotmail.com Received 5 April 2015; accepted 26 June 2015; published 29 June 2015 Copyright © 2015 by authors and Scientific Research Publishing Inc. This work is licensed under the Creative Commons Attribution International License (CC BY). http://creativecommons.org/licenses/by/4.0/ Abstract This paper investigates the relationship between dividend payout ratio and profitability of a firm. For this, two main sectors of Pakistan are selected, energy and textile. The study covers a time span of 1996-2008. Firm performance is measured by earning per share (EPS) and return on as- sets (ROA). The results of logarithmic regression show that no matter what industry is, there is a negative impact of dividend payout ratio on next year earnings of a firm. Keywords Dividend Payout, Earning Per Share, Return on Assets 1. Introduction Corporate earnings are the whole pie which gets split into two parts, the one slice which is distributed to share- holders and the other one which is retained for reinvestment. The parts of earnings which are meant to be distri- buted to shareholders are known as dividends. Taking the decision about quantity and payment mechanism of the dividends is regarded as dividend policy. Dividend payout ratio is often known as a measure of dividend policy. The most fundamental question is whether or not the dividend should be paid. The corporate finance theory is yet to answer this basic question. That is why dividend policy is considered to be a dark area in corpo- rate finance theory. In corporate finance theory, the bottom line of every decision is to analyze its effect on the