Dividend Per Share: How To Calculate It?

Dividend Per Share is a crucial metric for investors because it sheds light on a company's financial situation and cash flow generation capacity. High DPS businesses are frequently regarded as being stable financially and producing a lot of cash flow. A high DPS can also mean that a company is returning value to its shareholders, which is a positive trait that investors may find appealing.

What is Dividend per share

A financial ratio called dividend per share (DPS) calculates how much money a company distributes to its shareholders in the form of dividends on a per-share basis. It is calculated by dividing the total number of outstanding shares of stock by the total amount of dividends paid out.

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DPS's relationship to the stock price is another crucial feature. While a company with a higher dividend payout ratio may have a lower stock price than one with a lower DPS, the higher dividend payout can increase shareholders' returns on investment. For this reason, some investors favor investing in businesses with high dividend payout ratios (DPS), as they can continue to receive dividend payments even when stock prices are underperforming.

It is crucial to remember that a high DPS does not always signify a good investment opportunity. Other financial indicators like the company's earnings and revenue growth, as well as the general state of the market, should be taken into account. It's also important to remember that some businesses might decide to reinvest their profits in the company rather than distribute them as dividends, which could eventually result in growth.

How To Calculating Dividend per share

A financial ratio called dividend per share (DPS) determines the amount of cash dividend paid to shareholders for each share of stock they own. The DPS calculation formula is:

Total Dividends Paid) / (Number of Outstanding Shares)

Total dividends paid is the sum of all cash dividends paid to shareholders over a given time period, usually a fiscal quarter or year. A company's income statement will show this sum.

The total number of stock shares that shareholders currently own is referred to as the "number of outstanding shares.". A company's balance sheet will contain this figure.

It's significant to remember that not every business pays dividends. Instead of paying out cash to shareholders, some businesses may decide to reinvest earnings back into the company to support growth and expansion. The DPS would be zero in such circumstances.

Additionally, some businesses might pay preferred shareholders dividends but not common shareholders, depending on the type of shareholder. In these scenarios, the DPS for common shareholders would be zero while the DPS for preferred shareholders would be determined by applying the same formula.

When assessing a company's financial performance and potential to pay dividends, investors should generally take the DPS into account. It provides information on the amount of cash dividends that shareholders can anticipate receiving for each share they own and can be used to compare dividends of the same company or other companies over time.