What is Dividends Per Share (DPS)?
Dividends Per Share (DPS) represent the total dividend amount issued by a company on a per-share basis, most often using annualized figures.
- What is the definition of dividends per share (DPS)?
- What formula is used to calculate the dividends per share (DPS)?
- Why should quarterly dividends per share (DPS) be annualized?
- How should “high” or “low” dividends per share (DPS) be interpreted?
Dividends Per Share (DPS) Formula
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.
- 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
Interpreting Dividends Per Share (DPS) – High vs Low?
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