The dividend Per Share is the entire dividend amount attributed to each share outstanding of a company. Understand its meaning, and formula, with a detailed example here.
What is Dividend Per Share?
Dividend per share or DPS is all the dividends that a company has paid out for each of its outstanding shares during a certain period of time. DPS is calculated by taking into account all kinds of dividends that are paid out
Dividend Per Share Formula
DPS = Total Dividends Paid Out in a Year/Outstanding Shares of the Company
This ratio can tell how much dividend was earned by owning the stocks of that particular company over a period of time.
A rising DPS speaks highly of the company because it shows that the company has long term sustained earnings and has confidence in sharing its profits with shareholders.
An illustrated Dividend Per Share example for Calculation-
Let’s understand what DPS is and how it is calculated with the help of an example. We will take Infosys Ltd. as an example and calculate the DPS for two financial years.
- Financial Year 2020-2021
Infosys declared an interim dividend of Rs 8 and a final dividend of Rs 9.5 for the financial year 2020-2021. Here the calculation is pretty simple.
Total dividends are Rs 17.5 per share.
Even if you put it in the formula, the total number of outstanding shares cancel out.
Total Annual dividend: (17.5 x outstanding shares)/outstanding shares
The calculation with the help of dividend per share formula is simple.
- Financial Year 2019-2020
Infosys declared the following dividends
Final dividend: Rs 10.5 per share for the fiscal 2019
Interim dividend: Rs 7 per share paid in October in 2018
Special dividend: Rs 4 per share in January 2019
Total dividend per share: Rs 21.5 per share
All the numbers have been taken from the company's annual reports.
What is Meant by Dividends?
A dividend is an amount that a publicly listed company gives out to its shareholders for every share they hold. A company mostly gives out dividends out of their profits. The rate of dividend to be paid is decided by the company's board of directors.
However the important thing to remember about dividends is that it is discretionary. A company may decide to declare dividends out of its profits or reinvest its profits back into the business or a company may want to do both. It is completely the company board's decision.
Types of Cash Dividend
We now know what is dividend per share but this dividend can be given in three different forms. When a company gives out a cash dividend per share, the amount will be transferred directly into the bank account depending.
Here are the different types of dividends
Special Dividends
Special dividends are one-time dividends that a company pays to its shareholders in the form of cash. Since it's a one-time affair, special dividends are also tied to particular events which may have led to windfall gains for the company.
Final Dividend
Final dividend is declared for a preceding financial year and after the accounts and financials have been prepared for the fiscal year under consideration.
Interim Dividend
Interim dividend is declared before the accounts are prepared for the ongoing financial year. Hindustan Unilever Ltd. (HUL) declared an interim dividend of Rs 9.5 per share for the financial year,ending on March 31, 2021.
Forms of Dividends
A company may pay dividends in various forms, but these are the most prominent ones.
Cash Dividend
In cash dividend, the company pays out cash per share. The company issues an amount per share held by all the shareholders which is deposited in the bank account.
Stock Dividend
Stock dividend is when a company issues extra shares to the shareholders. An example of a stock dividend is a bonus issue. Say a company announces a bonus issue in the ratio: 5:1. This means the shareholder will get five shares for every one share held. So if an investor holds five shares, he or she will get 25 shares.
Difference Between Dividends Per Share and Earnings Per Share
Earnings per share (EPS) is a metric used to assess a company's profitability. It represents the profit made on each outstanding share. It is determined by dividing net profit by total number of outstanding shares.
A rising EPS shows that the company's profits are increasing, indicating financial health and stability. EPS does not indicate how much cash is distributed to shareholders. However, it serves as the foundation for the company's dividend payout to shareholders.
Dividend per share (DPS) refers to the portion of earnings allocated to shareholders. The board makes the decision based on the EPS. It is computed by dividing the total dividend by the number of outstanding shares. A growing DPS shows that the company has great financial performance and is willing to transfer earnings to its shareholders.
