DPS

Dividend per Share (DPS): Definition, Calculation & Example 

Dividend per Share (DPS) shows potential earnings per share of a company's stock. Learn how to calculate it and how it differs from Payout Ratio.

Investing in the stock market can be a great way to grow your wealth, but what if you're also interested in earning a regular income from your investments?

Dividend Per Share (DPS) is a handy metric that gives you an idea of how much income you can expect from a company's stock.

What Is Dividend per Share (DPS)? 

Dividend per Share (DPS) is a financial metric that tells you the amount of money you could potentially earn for each share of a company's stock you own.

Companies distribute a portion of their profits to shareholders in the form of dividends, usually on a quarterly or annual basis. DPS is calculated by dividing the total dividends paid by the number of common shares outstanding.

It is calculated using the formula:

DPS = Total Dividends Paid / Number of Shares Outstanding

What Is a Good Dividend Ratio? 

A good dividend ratio, often referred to as the dividend yield, is a percentage that shows how much a company pays out in dividends relative to its stock price.

Generally, a higher dividend yield is considered attractive for income-oriented investors. However, an extremely high yield could be a red flag, indicating that the company may not be able to sustain such payments in the long term.

The formula for calculating dividend yield is:

Dividend Yield = (Dividend per Share / Stock Price) x 100

What Is Dividend per Share (DPS)? 

Let's say Company A's stock is trading at US$100 per share and it pays an annual dividend of US$5 per share. The dividend yield would be calculated as follows:

Dividend Yield = (5 / 100) x 100% = 5%

In this example, the dividend yield or ratio is 5%, which is considered a decent yield for most income investors.

What Is an Example of a Dividend Ratio? 

EPS stands for Earnings per Share, a financial metric that represents the portion of a company's profit allocated to each outstanding share of common stock. It's a key indicator of a company's profitability and is often used by investors to assess financial performance.

EPS is calculated by dividing the net income of a company by the number of outstanding shares of common stock. The formula for calculating EPS is:

EPS = (Net Income - Dividends on Preferred Stock) / Number of Outstanding Shares

EPS is often reported on a quarterly or annual basis, and it is used in various other financial ratios and metrics, such as the Price-to-Earnings (P/E) ratio and the payout ratio for dividends.

Understanding EPS can help investors evaluate a company's profitability, financial health, and potential for future growth. It is also a critical component for calculating other important metrics like the payout ratio, which helps investors understand how sustainable a company's dividend payments are.

What Is the Payout Ratio? 

The payout ratio is a measure of how much of a company's earnings are returned to shareholders as dividends. A lower payout ratio may indicate that the company is reinvesting more of its earnings back into the business, while a higher ratio suggests that more earnings are being distributed as dividends.

The formula for calculating payout ratio is:

Payout Ratio = DPS / EPS

How Do You Calculate Dividends Paid? 

To find the total dividends paid by a company, you can use the formula:

Total Dividends Paid = DPS x Number of Shares Outstanding

For example, if a company has a DPS of $2 and 1 million shares outstanding, the total dividends paid would be:

Total Dividends Paid = $2 x 1,000,000 = $2,000,000

DPS: Key Takeaways 

• Dividend per Share (DPS) is a crucial metric for investors looking for income-generating stocks. It tells you how much you could earn per share of a company's stock through dividends.
• A good dividend yield is important for income-oriented investors. A higher yield is generally better, but extremely high yields may be unsustainable.
• The payout ratio is a measure that shows what percentage of a company's earnings are being paid out as dividends. A lower ratio often means the company is reinvesting more in the business.
• The retention ratio is the opposite of the payout ratio. It indicates how much of a company's earnings are being retained or reinvested in the company, rather than being paid out as dividends.
• Earnings per Share (EPS) is a key financial metric that represents a company's profitability. It's used in calculating other important metrics like the payout ratio, helping investors understand the sustainability of a company's dividend payments.