Definition
The Dividends Per Share (DPS) formula is a financial formula used to calculate the total dividends declared over a period by a corporation divided by the total number of outstanding shares. This offers investors a measure of a company’s financial health as it indicates how much cash an investor gets for every share they hold in a company. In essence, the formula is DPS = Total Dividends / Total Outstanding Shares.
Key Takeaways
- The Dividends Per Share Formula is a calculation used to determine the amount of dividends declared over a company’s outstanding shares. It’s most commonly used by investors to evaluate a company’s profitability and the income they might receive if they choose to invest.
- The formula is calculated by dividing total dividends paid by the company during a certain period by the total number of outstanding shares. It gives an idea of how much profit you might gain in dividends for every share you own.
- Despite being a valuable tool, the formula also has its limitations. It only takes into account the past dividends and does not predict future payouts. Furthermore, companies with a high Dividends Per Share may not always be a safe investment because if a company pays too many dividends, it may not be investing enough in its own growth.
Importance
The Dividends per Share (DPS) formula is crucial in the financial world as it provides an explicit measure of the amount of a company’s profit distributed to its shareholders in the form of dividends.
This is particularly important for investors as it indicates the return they receive for each share they own in a company.
Furthermore, a high DPS can sometimes indicate a healthy company with strong profits, making it attractive for prospective investors.
The DPS can also be utilized to calculate a stock’s dividend yield, which is a key financial indicator used for comparing the relative attractiveness of different dividend-paying stocks.
Hence, by enabling these assessments, the Dividends per Share formula is a key tool for making informed investment decisions.
Explanation
The Dividends per Share (DPS) Formula is a key financial tool that allows an investor or analyst to evaluate the financial health of a company and its profitability. This tool is used to determine the amount of dividends a company has paid to its shareholders relative to the total number of outstanding shares as a measure of the distribution of profits. By gaining insight into the dividends per share, current and potential investors can make informed decisions about the profitability and sustainability of a company.
A higher DPS can often signify a more profitable company, which can be more enticing to those looking for investments with reliable returns. Additionally, the Dividends per Share Formula is used for predicting potential growth in a company. Analyzing the growth or decline of DPS over a specific period can help to predict future business trends and determine a firm’s financial strategy.
This formula is especially valuable when comparing businesses within the same industry to better understand market competitiveness. Through DPS, businesses can align their financial strategies and make adjustments to maximize shareholder profits, contributing in creating a more shareholder-friendly environment. Businesses might also use this formula as a benchmark for performance and to develop future operational strategies.
Examples of Dividends per Share Formula
Sure, here are three real world examples of the Dividends per Share (DPS) Formula:**Example in Technology Sector: Apple Inc.** In 2020, Apple Inc. paid dividends of approximately $12 billion to its stockholders. The company had33 billion outstanding common shares during the year. By using the DPS formula, we get: $12 billion /33 billion shares = $26 DPS. Therefore, each common shareholder received $
26 per share held.**Example in Retail Sector: Walmart Inc.** In the fiscal year ending 2021, Walmart paid dividends of roughly $2 billion. At the time, they had around83 billion shares outstanding. Using the DPS formula: $2 billion /83 billion shares = $19 DPS. This means that Walmart paid $
19 per share to its shareholders as dividends.**Example in Energy Sector: Exxon Mobil Corp.** In 2020, Exxon Mobil paid dividends totaling about $7 billion. It had23 billion common shares outstanding. Using the DPS formula, we find: $7 billion /23 billion shares = $47 DPS. This indicates that every common shareholder received $
47 in dividends for each share held.These examples give you a clear understanding of how DPS is calculated in different industries.
FAQ – Dividends per Share Formula
What is the Dividends per Share Formula?
The Dividends per Share Formula is a financial metric that shows how much cash an investor is receiving for each share of stock they own. It’s calculated by dividing the total dividends paid out by a company by the total number of outstanding shares.
How do you calculate Dividends per Share?
Dividends per Share (DPS) can be calculated using the following formula: DPS = Dividends Paid / Number of Shares Outstanding. By simply dividing the total amount of dividends paid by the number of shares outstanding, you can find how much dividends each share earns.
What does Dividends Per Share tell about a company?
The Dividends Per Share metric can give potential investors an idea of the company’s profitability. A higher Dividends per share value can indicate a profitable and well-established company. On the other hand, a lower or no Dividends per share may mean the company is either not profitable or reinvesting its earnings back into the business.
Can Dividends Per Share increase?
Yes, Dividends Per Share can increase if a company decides to increase the amount of dividends it pays out to its shareholders. An increase in Dividends per Share could indicate the company’s earnings and cash flow are increasing.
What is a good Dividends Per Share ratio?
There isn’t a one-size-fits-all answer for what a ‘good’ Dividends Per Share ratio is. It has a lot to do with individual company’s dividend policy, industry, and the investor’s personal investment strategy. However, a consistently growing Dividends per Share rate can signal a financially stable company.
Related Entrepreneurship Terms
- Earnings per Share (EPS)
- Dividend Payout Ratio
- Retained Earnings
- Stockholder’s Equity
- Net Income
Sources for More Information
- Investopedia: A comprehensive website providing data and articles about finance and investing.
- The Motley Fool: This site offers a range of data on investing and financial topics, including stock details and tools for tracking personal finance.
- Corporate Finance Institute (CFI): It offers professional courses and free resources like articles and calculator tools about various areas of finance.
- Yahoo Finance: It provides financial news, data and commentary including stock quotes, reports, and personal finance advice.
