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Dividends Per Share (DPS)

Understand the Dividends Per Share (DPS) Concept

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Dividends Per Share (DPS)

Dividends Per Share (DPS) Formula

Dividends are defined as the distribution of a company’s after-tax earnings (i.e. net income) to common and preferred shareholders as a form of shareholder compensation.

A common metric used to assess a company’s dividend policy on a per-share basis is the dividends per share (DPS), which standardizes the metric to allow for comparisons in dividend policies among different companies.

Unlike the gross dividend amount, the DPS of a company can also be compared to that of historical periods to observe year-over-year (YoY) trends.

The dividends per share (DPS) is equal to the dividend issuance amount divided by the total number of shares outstanding.

DPS Formula
  • Dividends Per Share = Annualized Dividend Amount / Number of Shares Outstanding

The dividend issuance amount is typically expressed on an annual basis, meaning that a quarterly dividend amount is multiplied by four (i.e. four quarters in one fiscal year) – assuming that the quarterly dividend amount is to remain unchanged.

  • Annualized Dividend = Quarterly Dividend Amount x 4

The total number of shares outstanding should include the impact of dilutive securities, as well as be calculated based on the annual weighted average share count between the beginning and end of period shares outstanding.

  • Weighted Average of Shares Outstanding = (Beginning and End of Period Shares Outstanding) / 2

How to Interpret DPS

If a company’s dividend per share (DPS) increases, the market reaction is usually positive.

Why? Higher DPS usually stems from management’s confidence in the company’s future profitability and maintenance of its current market positioning.

By contrast, the cutting of the dividend per share (DPS) sends a negative signal to the market, indicative of uncertainty in the company’s future profits and stability.

Dividends Per Share (DPS) Example Calculation

For example, if a company issued a quarterly dividend of $50 million with no announcements regarding cutting the dividend in the near term, then the annualized dividend amount is calculated to be $200 million.

  • Annual Dividend Amount = $50 million x 4 = $200 million

Next, if the company is projected to have 90 million shares at the beginning of the period and 110 million shares outstanding at the end of the period, the weighted average share count is 100 million.

  • Weighted Average Shares Outstanding = (90 million + 110 million) / 2 = 100 million

Given those two inputs, if we divide the annualized dividend by the weighted average share count, we calculate $2.00 as the DPS.

  • Dividends Per Share (DPS) = $200 million / 100 million = $2.00
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