What Is the Total Shareholder Return?

How to Calculate the Total Shareholder Return Formula

Woman analyzing investment returns on statements and a mobile tablet

Total shareholder return is the amount of additional money earned for every dollar invested, and several ways exist to evaluate investment performance.

Here we'll examine how to calculate return based on various income variables.

Definition and Examples of Total Shareholder Return

Total shareholder return, in the broadest sense, is how much additional money you have for every $1 invested, regardless of the source of that additional money. To calculate it, you must understand those various sources of income.

There are several ways to evaluate investment performance. A common mistake in the investment process, especially among new investors, is focusing solely on capital gains rather than total shareholder return. This is an easy trap to fall into, especially if you didn't grow up learning about stocks, bonds, real estate, mutual funds, or small business investments.

Here's a quick example: Imagine an investor who bought one share of XYZ for $15. In one year, the new price of that stock is $20. They also made $2.50 in dividends over that time period. The investor would look to find out how much additional money they made—from all sources—compared to their initial investment.

While it may be easy to calculate in a simple example like this, the total shareholder return can be even more useful when higher amounts of money are invested.

How to Calculate the Total Shareholder Return

It may seem like you can calculate shareholder return simply by looking at the value of stock when it was purchased and comparing it to price today. But there's more that goes into it. To perform a full calculation, you'll also need to include:

  • Dividends
  • The value of any shares you got from a spin-off company
  • The value of the dividends from the spin-off
  • The value of any shares that were liquidated and converted to cash
  • Any other cash you received from the stock

To get the total shareholder return, you would add all of those together, along with the difference between your initial cost basis purchase value and the current stock value. You could then convert this to a percentage ROI by dividing the result by your initial cost basis.

This formula can get a little more complex when spin-offs are involved, as your broker might adjust the tax cost basis on your initial investment, assigning some of that proportionally to the spin-off. If you want to use those figures, you'd need to modify the variables accordingly, so you'd need to subtract the adjusted cost basis of the spun-off stock from the end market value of the spun-off stock, then add that result to your total shareholder return.

Total Shareholder Return Equation
The Balance

In complicated cases, you might end up having to do a lot of calculations across a dozen or more companies to retroactively calculate your total shareholder return, but the end result is much more informative than simply looking at how the stock price has changed since you first invested.

Don't Confuse Different Shareholder Return Formulas

The total shareholder return formula methodology many companies use in their annual report10-K filing, or proxy statement is fundamentally different. What those total shareholder return charts seek to answer is the question, "How much money would an investor have made if, at one year, 5 years, 10 years, and 20 years in the past, they had purchased our stock, held it, and reinvested all dividends?" A comparable total return figure is calculated for the firm's peer group (competitors, in many cases) and the S&P 500 stock market index to show the relative overperformance or underperformance.

5 Major Sources of Total Shareholder Return

Historically, total shareholder return has been generated by a handful of sources.

Capital Gains

When you buy a stock at one price and it appreciates, the difference is known as a capital gain. For the tiny minority of businesses that have never paid dividends or issued a stock split, this is the primary, often sole, source of total shareholder return. Warren Buffett's holding company, Berkshire Hathaway, falls into this category.


When a company generates net income, it may decide to take some of that money and distribute it to stockholders so they can enjoy the fruits of their financial risk. This money is referred to as a dividend.


For large, profitable enterprises, dividends have been academically shown to be the primary driver of nearly all inflation-adjusted total shareholder returns.


When a business decides to shed a unit or operation that no longer fits with its strategic goals, it isn't uncommon to have the subsidiary become its own publicly traded enterprise, sending owners shares as a special distribution. These stock spin-offs can be one of the most incredible sources of total shareholder return.

Recapitalization or Buyout Distributions

The capitalization structure of a business is very important. Sometimes, economic conditions change, and owners can increase their wealth by modifying the existing capitalization structure, freeing up equity that had been tied up in the business. This newly freed money, replaced by cheap debt, gets shipped out the door to owners, who can then spend, save, donate, gift, or reinvest it however they see fit.

Warrant Distributions

Though they made a brief comeback during the credit crisis, stock warrant distributions are practically unheard of in this day and age. In olden times (think the days of legendary investors such as Benjamin Graham), corporations would sometimes create warrants and distribute them to existing stockholders. These warrants behaved like stock options—they gave the holder the right, but not the obligation, to buy additional shares at a fixed price within a certain date range. But when they were exercised, the company itself would print new stock certificates and increase the total number of shares outstanding, taking the warrant premium for the corporate treasury.

An Example of Total Shareholder Return for a Real Blue Chip Stock

Let's look at the importance of total shareholder return in a real-life example. Let's say you had purchased 2,300 shares in PepsiCo at $44.38 per share in the early 1980s, for a total cost of $102,074.

A chart of PepsiCo's stock would make it appear that the position, following three stock splits—a three-for-one split on May 28th, 1986, a three-for-one split on September 4th, 1990, and a two-for-one split on May 28th, 1996—would have turned the 2,300 shares into 41,400 shares. If you had sold this stock in 2015, it would have been worth $4,098,600.

But, as good of a return as that is, it significantly understates total shareholder return because it excludes three sources of added wealth creation that would not have shown up in most stock charts.

  • Over those 32+ years, PepsiCo would have paid you $1,058,184 in cumulative cash dividends.
  • On October 6th, 1998, PepsiCo divested its restaurant division, which owned franchises such as KFC, Taco Bell, and Pizza Hut, by spinning off a business called Tricon Global Restaurants. The investor would have received an initial block of 4,140 shares that were split two-for-one on June 18th, 2002, and again, two-for-one on June 27th, 2007. That would have resulted in holding 16,560 shares of Yum! Brands (the business changed its name), which had a current market value of another $1,354,608. 
  • On top of this, Yum! Brands paid out cumulative cash dividends of $148,709 on its shares.

Combined, this means the PepsiCo investor had an extra $2,561,501 in wealth on top of the $4,098,600 in PepsiCo shares—that is almost 63% more money. If that doesn't convince you that total return is what really matters, nothing will.