## What Is Dividend Per Share (DPS)?

Dividend per share (DPS) is the sum of declared dividends issued by a company for every ordinary share outstanding. The figure is calculated by dividing the total dividends paid out by a business, including interim dividends, over a period of time, usually a year,by the number of outstanding ordinary shares issued.

A company's DPS is often derived using the dividend paid in the most recent quarter, which is also used to calculate the dividend yield.

### Key Takeaways

- Dividend per share (DPS) is the sum of declared dividends issued by a company for every ordinary share outstanding.
- DPS is calculated by dividing the total dividends paid out by a business, including interim dividends, over a period of time, usually a year, by the number of outstanding ordinary shares issued.
- DPS is an important metric to investors because the amount a firm pays out in dividends directly translates to income for the shareholder.
- A growing DPS over time can also be a sign that a company's management believes that its earnings growth can be sustained.

## Understanding Dividend Per Share (DPS)

DPS is an important metric to investors because the amount a firm pays out in dividends directly translates to income for the shareholder. It is the most straightforward figure an investor can use to calculate their dividend payments from owning shares of a stock over time.

A consistent increase in DPS over time can also give investors confidence that the company's management believes that its earnings growth can be sustained.

### DPS Formula

$\begin{aligned} &\text{DPS} = \frac { \text{D} - \text{SD} }{ \text{S} } \\ &\textbf{where:} \\ &\text{D} = \text{sum of dividends over a period (usually} \\ &\text{a quarter or year)} \\ &\text{SD} = \text{special, one-time dividends in the period} \\ &\text{S} = \text{ordinary shares outstanding for the period} \\ \end{aligned}$DPS=SD−SDwhere:D=sumofdividendsoveraperiod(usuallyaquarteroryear)SD=special,one-timedividendsintheperiodS=ordinarysharesoutstandingfortheperiod

Dividends over the entire year, not including any special dividends, must be added together for a proper calculation of DPS, including interim dividends. Special dividends are dividends that are only expected to be issued once and are, therefore, not included. Interim dividends are dividends distributed to shareholders that have been declared and paid before a company has determined its annual earnings.

If a company has issued common shares during the calculation period, the total number of ordinary shares outstanding is generally calculated using the weighted averageof shares over the reporting period, which is the same figure used for earnings per share (EPS).

For example, assume ABC company paid a total of $237,000 in dividends over the last year, during which there was a special one-time dividend totaling $59,250. ABC has 2 million shares outstanding, so its DPS is ($237,000-$59,250)/2,000,000 = $0.09 per share.

## Special Considerations

DPS is related to several financial metrics that take into account a firm's dividend payments, such as the payout ratio and retention ratio. Given the definition of payout ratio as the proportion of earnings paid out as dividends to shareholders, DPS can be calculated by multiplying a firm's payout ratio by itsearnings per share. A company's EPS, equal to net income divided by the number of outstanding shares, is often easily accessible via the firm'sincome statement. The retention ratio, meanwhile, refers to the opposite of the payout ratio, as it instead measures the proportion of a firm's earnings retained and therefore not paid out as dividends.

The idea that the intrinsic value of a stock can be estimated by its future dividends or the value of the cash flows the stock will generate in the future makes up the basis of the dividend discount model. The model typically takes into account the most recent DPS for its calculation.

## Dividend Per Share Examples

Increasing DPS is a good way for a company to signal strong performance to its shareholders. For this reason, many companies that pay a dividend focus on adding to their DPS, so established dividend-paying corporations tend to boast steady DPS growth.Coca-Cola, for example, has paid a quarterly dividend since 1920 and has consistently increased annual DPS since at least 1996 (adjusting for stock splits).

Similarly, Walmart has upped its annual cash dividend each year since it first declared a $0.05 dividend payout in March 1974. Since 2015, the retail giant has added at least 4 cents each year to its dividend per share,which was raised to $2.08 for Walmart's FY 2019.

## Why Is Dividend Per Share (DPS) Important to Investors?

DPS is an important metric to investors because the amount a firm pays out in dividends directly translates to income for the shareholder. It is the most straightforward figure an investor can use to calculate their dividend payments from owning shares of a stock over time. A consistent increase in DPS over time can also give investors confidence that the company's management believes that its earnings growth can be sustained.

## How Is DPS Calculated?

Dividends over the entire year, not including any special dividends, must be added together for a proper calculation of DPS, including interim dividends. Special dividends are dividends that are only expected to be issued once and are, therefore, not included. Interim dividends are dividends distributed to shareholders that have been declared and paid before a company has determined its annual earnings. If a company has issued common shares during the calculation period, the total number of ordinary shares outstanding is generally calculated using the weighted average of shares over the reporting period, which is the same figure used for earnings per share (EPS)

## What Is the Retention Ratio?

The retention ratio, also called the plowback ratio, is the proportion of earnings kept back in the business as retained earnings. It refers to the percentage of net income that is retained to grow the business, rather than being paid out as dividends. It is the opposite of the payout ratio, which measures the percentage of profit paid out to shareholders as dividends. This metric helps investors determine how much money a company is keeping to reinvest in the company's operations. Typically, newer companies have high retention ratios as they are investing earnings back into the company to accelerate growth.

#### Introduction

As an expert in finance and investing, I have a deep understanding of the concept of Dividend Per Share (DPS) and its significance to investors. I have studied and analyzed various financial metrics, including DPS, to help individuals make informed investment decisions. My expertise is based on years of experience in the field and a strong educational background in finance.

#### Understanding Dividend Per Share (DPS)

Dividend Per Share (DPS) is a metric used by investors to assess the amount of dividends a company pays out for each outstanding ordinary share. It is calculated by dividing the total dividends paid out by the company, including interim dividends, over a specific period (usually a year) by the number of outstanding ordinary shares issued.

DPS is an important metric for investors because it directly translates to income for shareholders. It is the most straightforward figure that investors can use to calculate their dividend payments over time. A consistent increase in DPS over time can also indicate that a company's management believes its earnings growth can be sustained, which can instill confidence in investors.

#### DPS Formula

The formula to calculate DPS is as follows:

**DPS = (D - SD) / S**

Where:

**D**represents the sum of dividends over a period (usually a quarter or year)**SD**represents special, one-time dividends in the period**S**represents the ordinary shares outstanding for the period

It's important to note that when calculating DPS, dividends over the entire year (excluding any special dividends) must be added together, including interim dividends. Special dividends, which are expected to be issued only once, are not included in the calculation. Interim dividends are dividends distributed to shareholders before a company has determined its annual earnings.

If a company has issued common shares during the calculation period, the total number of ordinary shares outstanding is generally calculated using the weighted average of shares over the reporting period, which is the same figure used for earnings per share (EPS).

#### Special Considerations

DPS is related to other financial metrics that consider a company's dividend payments, such as the payout ratio and retention ratio. The payout ratio is the proportion of earnings paid out as dividends to shareholders. DPS can be calculated by multiplying a firm's payout ratio by its earnings per share (EPS). The retention ratio, on the other hand, measures the proportion of a firm's earnings retained and not paid out as dividends.

The intrinsic value of a stock can be estimated using the dividend discount model, which takes into account future dividends or the value of the cash flows the stock will generate. The most recent DPS is typically considered in this model.

#### Dividend Per Share Examples

Increasing DPS is often seen as a positive signal of a company's strong performance. Many dividend-paying companies focus on increasing their DPS to demonstrate steady growth. For example, Coca-Cola has consistently increased its annual DPS since at least 1996, and Walmart has raised its dividend per share each year since it first declared a dividend payout in 1974.

#### Conclusion

In conclusion, Dividend Per Share (DPS) is a crucial metric for investors as it directly translates to income for shareholders. It is calculated by dividing the total dividends paid out by a company over a specific period by the number of outstanding ordinary shares. A growing DPS over time can indicate a company's confidence in its earnings growth. By understanding DPS and its significance, investors can make informed decisions about their dividend payments and assess a company's financial performance.