When companies make a profit they often declare to share a portion of it with shareholders in the form of dividend. Dividend per share as declared by the company will represent how much money a company pays in dividends for each share of issued common stock.
This means dividend per share is calculated to find out the payment to shareholders for each share of stock owned.
How to calculate Dividend per share or DPS
When company’s board of directors approves the dividend payment, the total amount approved is divided by the total number of shares outstanding to find out the dividends per share to be paid for that particular period.
Dividend per Share = (Total Dividend Paid – special dividend if any) / Weighted average number of Ordinary Shares outstanding
The total dividend paid can be calculated by multiplying net profit with the payout ratio that company has declared. For this calculation, you need to consider dividends paid for the entire year including interim dividend but excluding any special dividends.
Example:- If total dividend paid is Rs 460,000 and number of shares outstanding is 500,000 then dividend per share is Rs 0.92 i.e. 460,000/500,000.
Generally, dividends within a fiscal year declared every quarter or twice in a year known as the interim dividend before declaring the final dividend based on company’s dividend payout policy.
However, to calculate dividend per share for a year, you need to find out company’s dividend payment for the entire fiscal year i.e. by adding dividend payments for the entire year.
Dividends are paid to shareholders out of company’s net profit. After such payment, the balance left out of total net profit stays with the company as retained earnings to finance long-term growth.
Dividend per Share Vs Earning Per Share
Earnings per share or EPS is calculated by dividing company’s net income available for equity shareholders by the number of shares outstanding.
For example: if net income of available for equity shareholders is Rs 1,10,000 and the company pays out Rs 10000 as dividend to preferred stockholders then company’s EPS will be calculated as follows with 1,00,000 equity shares outstanding;
EPS = (1, 10,000-10,000)/1, 00,000 = 1
This means EPS is an indication of an organization’s profitability based on its net income for each outstanding shares issued.
DPS indicates the amount of dividend paid by a company per-share basis.
For DPS calculation, we use the Weighted average number of ordinary shares in the denominator. Weighted average number of ordinary shares means, number of common shares outstanding is taken and weights assigned based on the time they have remained outstanding during the fiscal year.
Example 2 – How to calculate weighted average number of common stocks
|Date||Description||Increase||Decrease||Shares Outstanding as on the date specified in Colum 1||Time weight||Weighted average number of common Shares (5*6)|
|01/04/2017||Number of shares outstanding||–||–||100000||3/12 months||25000|
|01/07/2017||Shares issued||20000||–||120000||7/12 months||70000|
|Weighted average number of common stocks outstanding as on 01/03/2017||105000|
Example 3 – calculation of Dividend per Share (DPS) and Earning Per Share (EPS)
|Profit available for shareholders||200000|
|Number of Shares Outstanding||50000|
|Dividend Per Share Or DPS||100000/50000 = 2|
|Earnings Per Share or EPS||200000/50000 = 4|
Growth in DPS shows that company’s board of directors has more confidence in company’s future earnings.
While looking into the growth factor, we suggest you see company’s dividend policy and future plan to know exactly what company is planning to do with the earnings.
Infosys dividend Per Share paid out during the last 5 years
|Interim Dividend* (Rs)||Final Dividend* (Rs)||Special Dividend* (Rs)||
Total Dividend* (Rs)
|*Adjusted for bonus shares and stock splits|
A drop in dividend per share may be considered as a signal that the company is not doing well financially. Generally established companies have higher dividend per share in comparison to start-ups as new companies will always retain earnings at a higher ratio for future expansion and acquisitions.