What is Dividends Per Share?
Dividends per share is equal to the sum of total amount of dividends that the company has given out over a year divided by total number of average shares that the company holds; this gives a view of the total amount of operating profits that the company has sent out of the company as a profit shared with shareholders that need not be reinvested.
Dividends per Share Formula
Here’s the formula for dividends per share (DPS) –
Since this calculation is done after the dividend is being paid, an investor will only get to know the past records. For example, if an investor wants to know the DPS of a company, he will look at the data of the latest year and then follow along.
The most important part in the formula is the “number of shares”. You can simply take the record of the beginning shares and the ending shares, and calculate the simple average of outstanding shares. Or else, you can go for a weighted average.
You would see that in calculating earnings per share also we take 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.. But the basic difference between the dividends per share and earnings per share is what we put in the numerator.
In DPS, we take annual dividends; and in the case of earnings per share, we use net income. The use of the weighted average method is true for those companies that pay dividend for the existing shares in January and issue new shares in December. You get the idea. Depending on an approach of a company, we may choose the calculation method.
Example of Dividends per share
Honey Bee Company has paid annual dividends of $20,000. The beginning outstanding stock was 4000 and the ending outstanding stock was 7000. Calculate DPS of Honey Bee Company.
In this example, we can go for simple average to find out the average outstanding shares.
- The beginning outstanding stock was 4000 and ending was 7000.
- Using the simple average, we get the average outstanding stock as = (4000 + 7000) / 2 = 11,000 / 2 = 5500.
- The annual dividends paid were $20,000.
Using the DPS formula, we get –
- DPS Formula = Annual Dividends / Number of Shares = $20,000 / 5500 = $3.64 per share.
Now, if we want to find out the dividend yield of the company, we can do so. We need to keep in mind that a lower DPS doesn’t mean that the company has no growth potential. We need to know the dividend yield and other financial measures to ensure whether the company has enough growth potential or not.
Use of DPS Formula
Any investor would look at different stocks to find out in which she would invest in.
For that, the investor looks at different ratios. Only DPS may not provide the overall outlook of the company; but 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., and DPS; she 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 re-investing more to increase the value of the company. Before an investor ever decides to invest; she needs to look at all the measures and find out a holistic view of the company’s financial affairs.
As we see from above, Colgate has been consistently paying dividends over the years, however, companies like Amazon and Google haven’t paid any dividends yet.
Dividends per Share Calculator
You can use the following Calculator
|Dividend per Share Formula =||
Dividends per Share in Excel (with excel template)
Let us now do the same example above in Excel.
This is very simple. You need to find the average outstanding shares using simple average formula. And then You need to provide the two inputs of Annual Dividends and Number of Shares.
You can easily calculate the ratio in the template provided.
First, we will go for simple average to find out the average outstanding shares.
Now, we will find out the DPS of Honey Bee Company.
You can download this DPS template here – Dividends per Share Excel Template
Dividends per Share Formula Video
This has been a guide to Dividends Per Share and its meaning. Here we discuss formula to calculate dividends per Share along with step by step examples and its uses. You may also learn more about financial analysis from the following set of articles-