Some investors look to buy shares of companies that will provide reliable income through sizable and consistent dividends. A company’s dividend per share (DPS) is the total dollar amount of dividends attributed to each individual share outstanding that was paid out to owners of those shares. It can be expressed for a quarter or an annual period.
Learn what DPS is, how to calculate it, what DPS can tell you about a company, and how DPS differs from earnings per share (EPS).
What Are Dividends Per Share?
To understand DPS, it is necessary to understand dividends. Dividends are cash payments to shareholders that are paid from a company’s profits.
Investors can accept the cash payout or have it automatically reinvested into additional shares of the company in what is known as a dividend reinvestment plan (DRIP).
Determining a company’s DPS is the most accurate way to determine how much income one can expect to receive from an investment on a per-share basis.
How Dividends Per Share Work
The majority of companies that pay a dividend do so quarterly. To calculate a company’s DPS, you divide the total amount of dividends paid by the total number of outstanding ordinary shares issued. The formula looks like this:
DPS = Total Dividends Paid - Any Special Dividends/ Shares Outstanding
For example, if a company pays a total dividend of $500,000 and there are 1 million shares outstanding, the DPS would be 500,000 / 1,000,000 = 0.50, or 50 cents per share.
While investors can calculate a company’s DPS themselves, the annual 10-K report issued by most companies via the U.S. Securities and Exchange Commission typically provides that information, along with notes regarding share buybacks and other events that can affect DPS.
Types of Dividends
Dividends are usually cash payments made periodically to stock investors, but there are other types.
- Property dividends: In this case, a company gives investors physical assets such as real estate, inventory, or equipment, instead of cash. The dividend is recorded at the market value of the asset.
- Stock dividends: The company gives investors additional shares of stock based on the current number of shares the investor holds.
- Scrip dividends: The company issues a promissory note to pay cash or new-share dividends at a later date.
- Liquidating dividends: Typically issued when a company is shutting down, the company liquidates its assets, settles financial obligations, then pays the remaining proceeds to investors as final dividends.
Estimating Future DPS
If a company has a track record of paying a consistent percentage of its earnings as dividends, it’s possible to estimate what the DPS will be through the company’s income statement. Here are the steps:
- Determine the net income.
- Determine the number of shares outstanding.
- Divide net income by the number of shares outstanding.
- Estimate the payout ratio by looking at past dividend payouts.
- Multiply the dividend payout ratio by the net income per share to get the estimated DPS.
Dividends and DPS are means of measuring a company’s strength. A record of paying consistent dividends or increasing dividends is often interpreted as a sign of positive expectations for future growth. This can attract additional investors and result in an increase in a company’s stock price.
It is important to note that a company that has consistently paid a percentage of its earnings in dividends may decrease or interrupt dividend payments if business slumps.
Many companies suspended or cut their dividends in 2020 due to COVID-related slowdowns, including stalwarts such as Harley-Davidson, Disney, and General Motors.
Alternatives to Dividends Per Share
Another metric investors use to assess the strength of a company and its future prospects is earnings per share (EPS). EPS measures each common share’s profit allocation in relation to the company’s total profit.
Investors also refer to a company’s dividend payout ratio (DPR), which is the proportion of dividends paid to shareholders in relation to the total amount of net income the company generates. For example, if a company’s net income is $20,000 and it pays $5,000 in dividends, its DPR is 25%.
A company’s DPR is not necessarily a signal of whether a company is a good or bad investment. Rather, DPR can signify to investors whether a company is likely to provide returns in the form of income (via regular and substantial dividends) or through growth that will hopefully result in a higher share price.
Dividends Per Share vs. Earnings Per Share
While both DPS and EPS are reflections of a company’s profitability, only DPS gives an investor a sense of how much income an investment will provide via dividend payments. Here is a look at what each provides.
|Dividend Per Share (DPS)||Earnings Per Share (EPS)|
|The portion of a company’s earnings that is paid out to shareholders||A measure of how profitable a company is, expressed in net income for each outstanding share of common stock|
|Can help identify investment opportunities for investors who seek steady income through dividends||Considered one of the most important metrics for identifying strong investments based on the value of the share price|
|Can indicate a company’s long-term stability||Can provide insight into how fast a company is growing|
What Dividend Per Share Means for Investors
Calculating DPS is beneficial to income investors (often retired individuals) who want their investments to provide a steady stream of funds through dividend payments. A company with a dependable or growing DPS over a number of years is an attractive investment for these types of investors.
A low DPS does not automatically flag concerns about an investment. It may simply mean that the company is instead reinvesting its profits into research and development or other areas that will spur growth, rather than returning money to investors through dividends. Theoretically, this choice will drive more profits, which will result in increased share price.
- Dividend per share (DPS) is the total amount of dividend paid per share of stock owned in a company. It is often derived using the dividend paid in the most recent quarter.
- DPS provides a means to assess a company’s strength and stability while providing an idea of how much income an investment will provide via dividend payments.
- A low DPS does not necessarily mean a company is a poor investment. It may simply mean it is instead reinvesting profits into research and development or other areas to spur growth.