Key takeaways
– Dividend per share (DPS) is the total ordinary dividends a company pays over a period divided by the number of ordinary shares outstanding; it’s a direct measure of cash returned to each shareholder. (Investopedia)
– Calculate DPS by excluding one‑time/special dividends, including interim dividends, and using a weighted average of outstanding shares if the share count changed. (Investopedia)
– DPS ties directly to other metrics: DPS = payout ratio × EPS; it’s used in valuation models (Dividend Discount Model), in screening (Dividend Aristocrats), and in assessing payout sustainability (payout and retention ratios).
– “Good” DPS is relative: consistency and growth, reasonable yield, and a sustainable payout ratio matter more than any absolute DPS number.
– Dividend taxation depends on jurisdiction and dividend type (e.g., qualified vs. ordinary dividends in the U.S.); check your tax authority for rules. (IRS)
What is Dividend Per Share (DPS)?
Dividend per share (DPS) is the sum of declared ordinary dividends paid by a company for each outstanding ordinary share over a given period (typically a quarter or year). DPS expresses the cash return to each shareholder and is a key input for income-focused investors and some valuation methods. (Investopedia)
Core formula and how to treat special items
– Basic formula: DPS = (D − SD) / S
– D = total dividends declared during the period (include interim dividends)
– SD = special (one‑time) dividends during the period (exclude these from regular DPS)
– S = ordinary shares outstanding for the period (use weighted average if shares changed)
– Alternate useful relation: DPS = payout ratio × EPS
– EPS = earnings per share for the same period
– payout ratio = portion of earnings paid as dividends
Step‑by‑step: How to calculate DPS (practical)
1. Choose the period (quarter or year). For valuation and consistency, many investors use the last 12 months (trailing 12 months).
2. Sum all ordinary dividends declared in that period (include interim dividends).
3. Subtract any special/one‑time dividends (these distort recurring income).
4. Determine the number of ordinary shares outstanding for that period. If the company issued/repurchased shares, use the weighted average outstanding shares (same approach as EPS).
5. Divide the adjusted total dividends by the shares outstanding to get DPS.
Worked example (from Investopedia)
– Company paid total dividends of $237,000 last year, which included a one‑time dividend of $59,250.
– Outstanding ordinary shares = 2,000,000.
– DPS = ($237,000 − $59,250) / 2,000,000 = $0.09 per share.
Practical steps to use DPS in analysis
1. Adjust for stock splits and similar events: historical DPS should be adjusted for stock splits/stock dividends so comparisons over time are meaningful. Many financial sites provide “adjusted dividend” histories. (Investopedia)
2. Check DPS growth trend: rising DPS over time suggests management confidence in future earnings; flat or declining DPS could signal caution or distress.
3. Compare DPS with dividend yield: Dividend yield = DPS / current share price. Yield shows return on current price; combine yield and DPS growth to assess income potential.
4. Assess sustainability with payout and retention ratios:
– Payout ratio = total dividends / net income (or payout ratio = DPS / EPS if EPS is per share)
– Retention (plowback) ratio = 1 − payout ratio (portion of earnings retained to fund growth)
A very high payout ratio can be unsustainable; a very low payout ratio may indicate low shareholder returns.
5. Use in valuation (Dividend Discount Model): DDM discounts expected future dividends to present value. Current DPS, expected growth, and required return are key inputs. DDM is best for companies with stable, predictable dividends. (Investopedia)
6. Screen for quality dividend payers: look for companies that raise DPS consistently (e.g., Dividend Aristocrats have increased dividends for at least 25 consecutive years). Also review cash flows, balance sheet strength, and free cash flow coverage of dividends. (S&P/Dow Jones indices; Investopedia)
Related concepts explained
– Dividend Discount Model (DDM): A valuation method that estimates a stock’s intrinsic value as the present value of expected future dividends. It commonly uses the most recent DPS and assumptions about dividend growth and required return. Best for mature, dividend‑paying firms. (Investopedia)
– Dividend Aristocrats: Companies in the S&P 500 that have increased their dividends for at least 25 consecutive years. Inclusion signals a long record of dividend consistency and growth. (S&P Dow Jones Indices)
– Retention (plowback) ratio: The fraction of earnings not paid out as dividends; retention funds growth, debt reduction, or buybacks. High retention often supports future earnings expansion but reduces current income to shareholders.
What is a “good” DPS?
– DPS must be judged relative to company size, share price, industry norms and payout sustainability.
– Investors typically prefer:
– Consistent or rising DPS over many years.
– A payout ratio that is sustainable given the company’s cash flow profile (not so high that dividends risk cuts).
– A dividend yield that matches the investor’s income goals without implying excessive risk (extremely high yields can be a red flag).
– Because DPS is an absolute dollar amount, it’s more informative to combine it with yield, payout ratio, cash flow coverage and DPS growth rate when assessing attractiveness.
Taxes on dividends (brief, general guidance)
– Tax treatment varies by country. In the U.S., dividends are taxed either as qualified (lower capital gains–style rates) or as ordinary/nonqualified (taxed at ordinary income rates). Eligibility for qualified treatment depends on holding period and origin of dividends. Consult your tax advisor or local tax authority for specifics. (IRS: topic on dividends and qualifying rules)
Common investor pitfalls and cautions
– Don’t use raw historical DPS across stock splits without adjustment — splits dilute DPS per share but not absolute cash received per original share.
– Don’t confuse one‑time special dividends with recurring DPS.
– DPS growth isn’t meaningful if earnings and cash flow can’t support the payout—always check free cash flow and payout ratios.
– A low DPS can still be fine for a fast‑growing company that prioritizes reinvestment over dividends.
Practical checklist for investors evaluating a stock’s DPS
1. Calculate trailing‑12‑month DPS (exclude specials).
2. Confirm DPS has been adjusted for splits/stock dividends.
3. Compute dividend yield = DPS / current price.
4. Calculate payout ratio = DPS / EPS (or total dividends / net income).
5. Examine free cash flow and dividend coverage.
6. Review DPS growth history (5–10 year trend) and any management guidance.
7. Consider company classification (mature vs. growth), industry norms and macro factors.
8. Factor in taxes and your required after‑tax yield.
9. If using DDM, set realistic growth and discount rate assumptions; run sensitivity analysis.
Sources and further reading
– Investopedia, “Dividend Per Share (DPS)” by Lara Antal — primary reference for definitions, formulas, examples. https://www.investopedia.com/terms/d/dividend-per-share.asp
– Investopedia, articles on Dividend Discount Model and Dividend Aristocrats — for valuation and screening background.
– S&P Dow Jones Indices — information on the S&P 500 Dividend Aristocrats index.
– Internal Revenue Service (U.S.), Topic/Publication pages on dividend taxation and qualified dividends — for U.S. tax rules. https://www.irs.gov
Bottom line
DPS is a straightforward, useful metric showing the cash dividend attributable to each ordinary share. It’s most valuable when combined with dividend yield, payout and retention ratios, cash‑flow analysis, and DPS growth trends. For valuation and screening, DPS feeds models (like the DDM) and lists (like Dividend Aristocrats), but investors must always adjust for nonrecurring items, stock splits, and the company’s ability to sustain payouts. Check tax rules in your jurisdiction before making income decisions. (Investopedia; IRS)
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Retention Ratio (finish)
– The retention ratio, or plowback ratio, measures the share of net income a company keeps to finance growth rather than paying out as dividends.
– Formula: Retention ratio = 1 − Payout ratio = (Net income − Dividends paid) / Net income.
– A high retention ratio indicates management is reinvesting earnings (growth focus); a low retention ratio indicates a heavier emphasis on current income to shareholders.
DPS in Context: Dividend Payments vs. Share Buybacks
– Companies return capital to shareholders through dividends and share repurchases. DPS captures only cash dividends per share; it ignores buybacks, which increase EPS and shareholder value but do not show in DPS.
– For a full picture of shareholder returns, combine DPS analysis with buyback activity and total shareholder return (price appreciation + dividends).
How to Calculate DPS — Practical Steps and Examples
Step-by-step calculation (annual DPS excluding special dividends)
1. Gather total dividends paid in the period (D). Include interim dividends; exclude special (one-time) dividends (SD).
2. Determine ordinary shares outstanding (S). If shares changed during the year, use the weighted-average number of shares (same method as EPS).
3. Compute DPS = (D − SD) / S.
Example 1 — Simple annual DPS (from article)
– Total dividends paid last year D = $237,000.
– One-time special dividend SD = $59,250.
– Shares outstanding S = 2,000,000.
– DPS = ($237,000 − $59,250) / 2,000,000 = $0.09 per share.
Example 2 — Quarterly DPS and annualizing
– If the most recent quarterly dividend = $0.25, and management has not declared any change, a common quick estimate of annual DPS = 4 × quarterly dividend = $1.00. (Useful for dividend yield calculations; confirm company payout policy.)
Weighted-average shares example
– If a company issued new shares mid-year: Jan–Jun it had 1.8M shares, Jul–Dec it had 2.2M shares.
– Weighted average = (1.8M × 6/12) + (2.2M × 6/12) = 2.0M shares — use that S in DPS.
Adjusting DPS for stock splits
– Stock splits increase shares outstanding and reduce per-share figures proportionally; use “adjusted dividends” (many data providers supply these) to compare DPS over time consistently.
Using DPS in Valuation — Dividend Discount Model (DDM)
– DDM (Gordon Growth Model) estimates intrinsic value as the present value of expected future dividends under growth assumptions.
– Constant-growth formula: Value = DPS1 / (r − g), where DPS1 = next year’s expected dividend per share, r = required rate of return, g = long-term dividend growth rate.
Example (Gordon model)
– Current annual DPS (D0) = $2.00. Suppose dividends grow at g = 4% forever, required return r = 8%.
– DPS next year DPS1 = D0 × (1 + g) = $2.08.
– Intrinsic value = 2.08 / (0.08 − 0.04) = 2.08 / 0.04 = $52.00 per share.
Forecasting DPS using payout ratio and EPS
– If you expect EPS next year, and you assume a target payout ratio, you can forecast DPS = EPS_forecast × payout ratio.
– Example: Forecast EPS = $5.00, expected payout ratio = 40% → DPS = $5 × 0.40 = $2.00.
Related Metrics — How DPS Links to Other Ratios
– Dividend Yield = Annual DPS / Current Share Price. Useful to compare income potential across stocks.
– Payout Ratio (based on EPS) = DPS / EPS (or Total dividends / Net income). Indicates sustainability; very high ratios may be risky.
– Retention Ratio = 1 − Payout Ratio. Shows fraction of earnings reinvested.
– Free Cash Flow Coverage = Dividends / Free Cash Flow — superior measure of dividend sustainability, especially for capital-intensive firms.
Real-World Examples and Observations
– Coca-Cola (KO): Long history of rising DPS; charts often show “stair-step” growth. Beware of stock splits — an apparent DPS drop after a split is just a per-share arithmetic effect (total cash per shareholder unaffected).
– Walmart (WMT): Long record of increasing annual cash dividends; example of a mature company with consistent DPS growth.
– Dividend Aristocrats: Companies in the S&P 500 that have increased dividends for 25+ consecutive years. These firms often have disciplined dividend policies and consistent DPS growth (see S&P 500 Dividend Aristocrats list and ETFs that track it, e.g., funds referencing this index).
What Is a “Good” DPS?
– DPS is an absolute dollar amount and must be judged relative to:
– Share price (via dividend yield).
– Company earnings (via payout ratio).
– Industry norms (utilities often pay higher payout ratios; technology firms typically pay smaller DPS).
– Practical benchmarks:
– Dividend yield: 2%–6% is common for many blue-chip firms; >6% can be attractive but may signal higher risk.
– Payout ratio: <60% often considered sustainable for many industries; lower for high-growth firms; some regulated sectors tolerate higher ratios.
– Ultimately, a “good” DPS is one that is supported by stable cash flow, a reasonable payout ratio, and consistent management commitment.
Do You Pay Taxes on Dividends?
– Yes—dividends are taxable income to shareholders. Tax treatment differs by type and jurisdiction.
– In the U.S.:
– Qualified dividends (meeting holding period and other IRS requirements) are taxed at long-term capital gains rates: typically 0%, 15%, or 20% depending on taxable income (plus possible 3.8% Net Investment Income Tax for high earners).
– Ordinary (nonqualified) dividends are taxed at ordinary income tax rates.
– Holding-period rule: For most common stock, you must hold the stock more than 60 days during the 121-day period that begins 60 days before the ex-dividend date for dividends to be “qualified.” (See IRS Topic No. 404 / Publication 550 for details.)
– Foreign dividends: Often subject to withholding taxes in the source country; tax treaties may reduce rates. U.S. investors may be eligible for a foreign tax credit (Form 1116).
– Brokerages report dividends on Form 1099-DIV in the U.S.
Limitations and Pitfalls of DPS
– DPS ignores buybacks — total shareholder returns may be higher or lower depending on repurchases.
– Special/one-time dividends can distort DPS trends; always check for SD and exclude them when assessing recurring income.
– DPS is sensitive to share-count changes and stock splits — use adjusted DPS for historical comparisons.
– Industry differences: REITs, MLPs, and utilities have different payout dynamics and regulatory constraints; interpret DPS in an industry context.
– DPS can be maintained temporarily despite declining business fundamentals; focus on cash flow and coverage ratios.
Practical Steps for Investors — How to Use DPS Effectively
1. Collect data
– Find last annual DPS (or last quarterly ×4), recent dividend declarations, ex-dividend and payment dates, payout ratio, EPS, free cash flow, and shares outstanding (weighted average).
– Sources: company investor relations, 10-K/10-Q, broker research, financial websites.
2. Calculate key metrics
– DPS, dividend yield, payout ratio, retention ratio, dividend coverage (dividends / free cash flow).
3. Check sustainability
– Is the payout ratio reasonable for the sector?
– Are earnings and free cash flow stable or growing?
– Does the balance sheet support continued payouts (debt levels, interest coverage)?
4. Look at history and policy
– Consistent increases in DPS over multiple years (and adjustments for splits) question sustainability and management intent.
– Check whether dividends are part of a formal policy or ad hoc.
5. Consider total returns
– Combine dividend yield and expected dividend growth with expected capital appreciation.
– If using DDM, be conservative with growth and required-return assumptions.
6. Tax planning
– Understand tax consequences (qualified vs. ordinary dividends) and if foreign withholding applies.
7. Use DRIPs and reinvestment decisions
– Dividend Reinvestment Plans (DRIPs) automatically reinvest dividends to buy more shares — useful for compounding, especially in taxable-advantaged accounts.
8. Compare peers
– Benchmarks: compare yield, payout ratio, growth, and coverage with industry peers.
Forecasting Example (practical)
– Company X: EPS this year = $4.00. Management targets payout ratio = 40%. Expect EPS growth = 5% next year.
– Forecast next-year EPS = 4.00 × 1.05 = $4.20. Forecast DPS = 4.20 × 0.40 = $1.68.
– If current price = $35, expected dividend yield next year ≈ 1.68 / 35 = 4.8%.
Tools & Data Sources
– Company filings (10-K, 10-Q): authoritative source for dividends, share counts, cashflows.
– Broker and financial-data websites: adjusted dividend histories (account for splits), dividend calendars, payout ratios.
– Index providers and ETFs: lists of Dividend Aristocrats and funds tracking dividend strategies.
– Tax guidance: IRS Topic No. 404, Publication 550 (U.S. investors).
Concluding Summary
Dividend per Share (DPS) is a straightforward, useful metric that quantifies the cash dividend a shareholder receives for each ordinary share held. It’s a key input for income-focused investing, dividend valuation models (like the DDM), and performance benchmarking. However, DPS is only one piece of the picture. To assess dividend quality and sustainability, combine DPS with dividend yield, payout and retention ratios, free cash flow coverage, balance-sheet strength, dividend history (adjusted for splits and special payments), and broader corporate capital-return policies (including buybacks). Tax considerations and industry norms also materially affect the attractiveness of a dividend. By using DPS together with these complementary measures and steps, investors can make more informed decisions about dividend income and total-return potential.
Sources
– Investopedia — “Dividend Per Share (DPS)” (source material) https://www.investopedia.com/terms/d/dividend-per-share.asp
– IRS — Topic No. 404, “Dividends” (tax rules on dividends)
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