Dividend per Share
Dividend per Share (DPS) is the total dividends declared by a company divided by the number of outstanding shares the company has issued. It indicates the amount of cash a company plans to distribute to its shareholders in the form of dividends for each share of stock they own.
The formula to calculate Dividend per Share is as follows:
\(\text{Dividend per Share} = \frac{\text{Total Dividends}}{\text{Number of Outstanding Shares}} \)
Companies often use this metric to communicate the distribution of profits to shareholders. Shareholders, especially those interested in income investing, use DPS to compare the dividend-paying strength of different companies. A higher DPS can indicate a more profitable company, but it’s important to understand that companies have different dividend policies and the decision to pay dividends is at the discretion of the company’s board of directors.
Dividend per Share is also used to calculate the Dividend Yield, which relates the annual dividends per share to the company’s share price, providing a measure of the relative attractiveness of the company’s dividends to its stock price.
Example of Dividend per Share
Suppose Company XYZ has declared total dividends of $1 million for the year and has 1 million outstanding shares.
To calculate the Dividend per Share, we divide the total dividends by the number of outstanding shares:
\(\text{Dividend per Share} = \frac{\text{Total Dividends}}{\text{Number of Outstanding Shares}} \)
\(\text{Dividend per Share} = \frac{\$1,000,000}{1,000,000} = \$1 \)
In this case, Company XYZ has a Dividend per Share of $1. This means that for each share of Company XYZ’s stock that an investor owns, they can expect to receive $1 in dividends for the given period.
It’s important to note that dividend payments can occur on different schedules, such as quarterly, semi-annually, or annually, and the amount of dividends per share may vary between payment periods. Dividend per Share is typically quoted on an annual basis but can be adjusted for the specific dividend payment frequency.
Also, remember that Dividend per Share is just one aspect of evaluating a company’s dividend potential. Investors should consider other factors such as the company’s dividend history, payout ratio, financial health, and overall investment objectives when assessing the attractiveness of a dividend-paying stock.
