How to Calculate Dividend per Share?

Dividend Per Share meaning

Dividend Per Share represents the amount of money a company pays out to its shareholders for each share they own. It reflects the portion of the company's earnings that is distributed as dividends offering a way for investors to receive income in addition to any potential gains from stock price appreciation. A higher DPS indicates that the company is performing well and generating enough profit to reward its shareholders. Companies that consistently pay or increase dividends are often seen as stable and reliable which can attract long term investors. DPS helps investors assess the return on their investment especially those seeking regular income through dividends. It also provides insight into a company's financial health and its ability to share profits with its shareholders over time. This payment usually comes from the company’s profits and the amount given is decided by the board of directors.

Dividends can be seen as a way for companies to share their earnings with investors. However it's important to know that paying dividends is not mandatory. Companies have the option to either distribute dividends, reinvest their profits back into the business to fuel growth or do a combination of both. The decision on whether to pay dividends and how much to pay ultimately lies with the company's board based on their strategy and financial health.
 

How to Calculate Dividend per Share

Dividend per Share is calculated by dividing the total dividends paid by the company by the number of outstanding shares. To find DPS, first determine the total dividends distributed which can be found in the company's financial statements. Next, identify the number of shares that are currently held by shareholders excluding any treasury shares. Then, divide the total dividends by the number of outstanding shares. For example, if a company pays ₹5,00,000 in dividends and has 1,00,000 outstanding shares the DPS would be ₹5 per share. This calculation indicates the amount of dividend paid for each individual share owned by investors.

Dividend Per Share Formula

Dividend Per Share is a key financial metric that indicates how much a company pays its shareholders in dividends for each share they own. It is calculated by dividing the total dividends paid out by the company in a year by the number of outstanding shares.

DPS = Total Dividends Paid Out in a Year/Outstanding Shares of the Company
 

Dividend Per Share Calculation

For instance firm A has distributed yearly dividends totaling Rs. 20,000 over the past years. Outstanding shares at the beginning of the time period were 4000 and impressive shares at the end were 7000. 

Let's go ahead and know how to calculate dividends per share for company A.

In this case we can use a simple average to find the average number of outstanding shares.

•    The number of shares outstanding at the start was 4,000, at the conclusion it was 7,000.

•    Using the simple average we can calculate the average number of shares that are now outstanding as follows = (4000 + 7000) / 2 = 11,000 / 2 = 5500

•    The total amount of dividends paid each year was ₹20,000

DPS = Total Dividends Paid Out in a Year/Outstanding Shares of the Company
    
        = ₹20,000 / 5500
        = ₹3.64 per share
 

Dividend Per Share Calculation - Example

Let’s learn what Dividend per Share (DPS) is and how to calculate it using Infosys Ltd. as an example for two financial years.

Financial Year 2020-2021

For the financial year 2020-2021, Infosys declared:

• An interim dividend of ₹8 per share
• A final dividend of ₹9.5 per share

To find the total dividends per share, simply add these amounts:

Total Dividend per Share = ₹8 + ₹9.5 = ₹17.5

Since the formula for DPS is total dividends divided by the number of outstanding shares, you can see that when calculating the DPS, the number of shares cancels out, making the calculation straightforward:

Total Annual Dividend = (₹17.5 × Outstanding Shares) / Outstanding Shares = ₹17.5
 

Dividend Per Share Calculation From the Income Statement

When a company maintains a stable dividend payment ratio using the income statement, one can arrive at a rough estimate of the company's dividend per share. To know how to get a dividend per share using the income statement the following steps need to be taken:

1.  Know the company's net profit - The income statement will typically conclude by presenting the net income at the bottom.

2.  Find out how many shares are outstanding - The number of outstanding shares may generally be found on the company's balance sheet. If there are treasury shares deduct that number from the total number of issued shares to obtain the number of outstanding shares.

3.  Divide the net income by the total number of outstanding shares - The earnings per share can be calculated by taking the net income and dividing it by the total number of shares outstanding (EPS).

4.  Find out what the average payout ratio is for the company - You can estimate the average payout ratio by looking at dividend payments made in the past. 

5.  Dividend per share - can be calculated by multiplying the payout ratio by the net income per share.
 

Types of Dividends

Dividends are paid out in cash to investors but that isn't always the case. There are many different kinds of dividends including the following:

Property Dividend

The company distributes the dividend as an asset which may include property, plant, equipment, a car, inventory and other similar things.

Liquidating Dividends

The company or business sells all of its assets and then distributes the proceeds to its shareholders as dividends. When a company is set to go out of business, liquidating dividends are paid to shareholders.

Cash Dividends

This is the most regular dividend that shareholders get paid out on each share they own. It is merely a monetary payment and the value may be determined using the methods presented earlier.

Scrip Dividends

The company has promised stockholders that they will be paid at a later time. Scrip dividends can be considered a promissory note that promises to pay shareholders at some point in the future.
 

Dividends Per Share vs Earnings Per Share

The Rationale for Paying and Not Paying DPS

The Rationale for Paying a Dividend to Shareholders

Companies choose to pay dividends for a couple of main reasons:

1. Attracting Investors: Many investors appreciate receiving dividends as they provide a steady source of income. As a result, dividend-paying companies can be more appealing to these investors.

2. Signaling Strength: Paying dividends can indicate that a company is strong and confident about its future earnings. This positive signal can make the company's stock more attractive, potentially increasing its market value.

The Rationale for Not Paying a Dividend

While dividends can attract investors and signal strength, there are also important reasons why companies might choose not to pay them:

1. Rapid Growth: Companies experiencing rapid growth often reinvest their earnings rather than paying dividends. This reinvestment helps fund further expansion.

2. Internal Investment Opportunities: Mature companies may choose to keep their earnings to reinvest in new projects, acquire assets or pursue mergers and acquisitions (M&A).

3. Avoiding Negative Signals: If a company decides to cut or eliminate its dividends after initially paying them it can send a negative signal to investors. To avoid this situation some companies may choose not to pay dividends at all. 

What is a Good DPS Ratio?

A good Dividend per Share usually ranges from 2% to 6% of the stock price which suggests a healthy return for investors. For example if a company's share price is ₹100 a DPS in this range would be between ₹2 and ₹6 per share. 

However what counts as a good DPS can vary based on the industry, company’s growth stage and market conditions. For instance established companies in sectors like utilities or consumer goods offer higher dividends as they have stable earnings. In contrast growth oriented companies like many tech firms might prefer to reinvest their profits into expanding the business rather than paying dividends.

If a utility company has a share price of ₹200 and pays a dividend of ₹10 per share DPS would be 5% which is considered good.

Conclusion

By now you have learned how do you calculate dividend per share. Dividend Per Share tells you how much cash a company pays to its shareholders for each share they own. To find the DPS you divide the total amount of dividends the company pays by the number of shares it has. A higher DPS means the company is doing well financially and is focused on rewarding its investors. This is important for those who are looking for regular income from their investments. Knowing the DPS helps you compare different stocks and choose the ones that align with your investment goals. By focusing on companies with a good DPS you can find those that prioritize returning value to their shareholders. A good dividend per share comes within the range of 2% to 6%.