Dividend Per Share (DPS) is a crucial metric in value investing, reflecting a company’s financial health and commitment to returning value to shareholders. DPS represents the total dividends paid out to shareholders divided by the number of outstanding shares. This figure is calculated by summing up all dividends paid over a specific period, excluding any special, one-time dividends, and dividing by the total number of ordinary shares outstanding.
Key Takeaways
- Definition: DPS is the total dividends paid by a company per share of common stock, reflecting the income investors receive from their holdings.
- Calculation: DPS is derived by dividing the total declared dividends (excluding special dividends) by the number of outstanding shares.
- Investor Insight: A rising DPS signals confidence from management in the company’s earnings and suggests financial stability and growth.
Formula for DPS DPS=D−SDS\text{DPS} = \frac{D – SD}{S}DPS=SD−SD Where:
- DDD = Total dividends paid over a period (usually a year)
- SDSDSD = Special, one-time dividends
- SSS = Number of ordinary shares outstanding
For instance, if a company paid $237,000 in total dividends, including $59,250 in special dividends, and has 2 million shares outstanding, the DPS would be calculated as follows: DPS=237,000−59,2502,000,000=$0.09 per share\text{DPS} = \frac{237,000 – 59,250}{2,000,000} = \$0.09 \text{ per share}DPS=2,000,000237,000−59,250=$0.09 per share
Why DPS Matters
- Profitability and Cash Flow: A stable or increasing DPS indicates strong profitability and cash flow, signaling financial health.
- Shareholder Value: High DPS reflects a company’s priority to reward its investors.
- Dividend Policy: Changes in DPS can reveal adjustments in a company’s dividend policy.
- Dividend Yield: DPS helps calculate dividend yield, aiding in the comparison of income potential across stocks.
- Growth vs. Stability: Companies in their growth phase may have lower or no DPS, while mature companies with stable cash flow often provide higher DPS.
Examples of DPS in Action
- Coca-Cola Co. (KO): Known for its consistent DPS growth, Coca-Cola has increased its dividend annually for decades, even adjusting for stock splits to maintain its record.
- Walmart Inc. (WMT): Walmart has a long history of increasing its annual DPS, demonstrating its commitment to rewarding shareholders. In 2024, Walmart announced a 9% increase in its annual cash dividend to $0.83 per share.
Additional Considerations Investors should also look at other related metrics such as the payout ratio and dividend coverage ratio to gauge the sustainability of a company’s dividends. These metrics help ensure that the DPS is not only attractive but also sustainable in the long term.
Conclusion DPS is a fundamental measure for assessing a company’s dividend-paying capability and financial stability. Investors should analyze DPS alongside other financial indicators to make informed investment decisions and ensure a steady income stream from their investments.
I am Aparna Sahu
Investment Specialist and Financial Writer
With 2 years of experience in the financial sector, Aparna brings a wealth of knowledge and insight to Investor Welcome. As an accomplished author and investment specialist, Aparna has a passion for demystifying complex financial concepts and empowering investors with actionable strategies. She has been featured in relevant publications, if any, and is dedicated to providing clear, evidence-based analysis that helps clients make informed investment decisions. Aparna Sahu holds a relevant degree or certification and is committed to staying ahead of market trends to deliver the most up-to-date advice.
