What Is Dividends Per Share?
Dividends per share are the sum of the total amount of dividends that the company has given out over a year divided by the weighted average of shares that the company holds. Thus, the company’s after-tax profit is given to investors who are the organization’s shareholders.
This value shows the total amount of operating income the company has sent out as a profit shared with shareholders that need not be reinvested. The investors can also understand how much return they have earned against every share they hold and are entitled to get it after all other creditors are paid off.
Table of contents
- Dividends per share is the total dividend divided by the total weighted average of the company’s outstanding shares.
- It is the part of the profit the company earns, that is distributed to investors.
- Using the DPS formula, an investor can gauge the company’s overall performance, because it shows that the company is earning enough profit to distribute to its shareholders and keep them satisfied.
- Annual Dividends per share is given only after all other creditors are paid off and there is still enough profit left for distribution.
Dividends Per Share Explained
Since this calculation is done when the dividend is being paid, an investor will only get to know the records. So, for example, if an investor wants to know the annual dividends per share of a company, they will look at the latest year’s data and then follow along.
It should be noted that in calculating earnings per share the weighted average of outstanding sharesOutstanding SharesOutstanding shares are the stocks available with the company's shareholders at a given point of time after excluding the shares that the entity had repurchased. It is shown as a part of the owner's equity in the liability side of the company's balance sheet.is taken into account. But the basic difference between the DPS and earnings per share is what is put in the numerator.
DPS can be of various types, cash dividends per share, stock dividends, property dividends, liquidating dividends, etc.
To calculate dividends per share, annual dividends are considered, and net income is considered in the case of earnings per share. The weighted average method is proper for companies that pay dividends for the existing shares in January and issue new shares in December. The calculation method depends on the approach of a company
Now you can Master Financial Modeling with Wallstreetmojo’s premium courses at special prices
Best Financial Modeling Courses by Wallstreetmojo
Financial Modeling Course
* 12+ Hours of Video
Financial Modeling & Valuation
* 25+ Hours of Video
* Certificate of Completion
* 12+ Hours of Video
Dividends Per Share Overview video
Here’s the formula for dividends per share (DPS) –
DPS = Annual Dividend / Weighted average of outstanding shares
Since this calculation is done after the dividend is paid, an investor will only get to know the records. So, for example, if an investor wants to know the cash dividend per share of a company, they will look at the latest year’s data and then follow along.
Honey Bee Company has paid annual dividends of $20,000. The outstanding beginning stock was 4000, and the outstanding ending stock was 7000. The investor can calculate dividends per share of Honey Bee Company in the following way:
In this example, a simple average is used to determine the average outstanding shares.
- The beginning outstanding stock was 4000 and the end was 7000.
- Using the simple average, the average outstanding stock is = (4000 + 7000) / 2 = 11,000 / 2 = 5500.
- The annual dividends paid were $20,000.
Using the DPS formula, the calculation is as follows: –
- DPS Formula = Annual Dividends / Number of Shares = $20,000 / 5500 = $3.64 per share.
Now, the investor can also find the company’s dividend yield, . A lower DPS doesn’t mean that the company has no growth potential. But good dividends per share is a benchmark to judge that the company is profitable. However, the investor should know the dividend yield and other financial measures to ensure whether the company has enough growth potential or not.
Any investor would look at different stocks to find out how she would invest.
For that, the investor looks at different ratios. Only DPS may not provide the overall outlook of the company. Still, if an investor can look at different financial ratios along with dividend payout ratio Dividend Payout RatioThe dividend payout ratio is the ratio between the total amount of dividends paid (preferred and normal dividend) to the company's net income. Formula = Dividends/Net Income, dividend yieldDividend YieldDividend yield ratio is the ratio of a company's current dividend to its current share price. It represents the potential return on investment for a given stock., DPS like dividend payout ratio, dividend yield they would have a solid understanding of the company.
If an investor sees that the dividend payout ratio of a company is lower, that means the company is reinvesting more to increase its value. Therefore, before an investor ever decides to invest, they need to look at all the measures and find a holistic view of the company’s financial affairs.
In the above chart, it can be seen that Colgate has been consistently paying dividends over the years and has good dividends per share. However, companies like Amazon and Google haven’t paid any dividends yet.
Investors can use the following calculator to calculate dividends per share.
|Dividend per Share Formula =||
Let us now do the same example above in Excel.
This is very simple and can be calculated by finding the average outstanding shares using simple average formulaAverage FormulaAverage is the value that is used to represent the set of values of data as is the average calculated from whole data and this formula is calculated by adding all the values of the set given, denoted by summation of X and dividing it by the number of values given in set denoted by N.. And then, the calculation needs two inputs Annual Dividends and the Number of Shares which can be used to easily calculate the ratio in the template provided.
First, it is necessary to calculate a simple average to find out the average outstanding shares.
Now, it is possible to find out the DPS of Honey Bee Company.
Investors can download this DPS template here – Dividends per Share Excel Template
Dividend Per Share Vs Earning Per Share
Dividend per share is the amount of dividend earned for every share held but earning per share is the return on every share held. The basic differences between are as follows:
|Dividend Per Share||Earning Per Share|
|It is the dividend against each share.||It is the earning against each share.|
|It measures the part of profit distributes to shareholders.||It measures the company’s profitability.|
|It is paid to shareholders.||It is not paid to shareholders.|
|It is an investor’s direct income.||It signal company growth but the investor does not get them directly. It is invested back to the business.|
Frequently Asked Questions (FAQs)
A range of 33%-55% is considered good enough from an investor’s point of view for them to feel satisfied with the stock. Any company able to give out around half of its earnings at dividends means that the company is a well-established leader in its industry.
One can calculate the figure by the following formula – Total dividend (by business) + Interim dividends / Outstanding ordinary shares number
Apple once broke the record for the highest dividend given under the S&P 500 group. Just Apple’s dividend alone can increase the payment by S&P 500 by upto 3.9%.
This has been a Guide to what is Dividends Per Share. We explain its formula, example, interpretation, and use of calculator and excel to calculate it. You may also learn more about financial analysis from the following set of articles-
- Special Dividend – MeaningSpecial Dividend - MeaningThe term "Special Dividend" refers to an amount distributed to shareholders in the name of a dividend that is in addition to the regular dividend. Companies do this in the event of an unexpected inflow of cash or assets.
- Pledged Shares ExamplePledged Shares ExamplePledged shares are shares transferred to the lender as collateral security by the company's promoters to raise funds or take a loan for business requirements, working capital requirement, business funding, or raising funds for any new projects.
- Calculate Dividend GrowthCalculate Dividend GrowthDividend Growth is defined as a significant rise in a company's dividend payout to its shareholders from one period of time to another in comparison to the dividend payout of the previous period of time (generally the growth is calculated on yearly basis).
- Compare – Dividends Ex-Date vs Record DateCompare - Dividends Ex-Date Vs Record DateThe dividend ex-date is the deadline for an investor to complete his purchase of the underlying stock in order to receive a dividend payment. On the other hand, top management determines the record date, which is the date on which the investor's name must appear in the company's books.