## 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.

As a seasoned financial analyst with years of experience in the field, I've not only studied but actively applied various financial concepts, including those related to dividend per share (DPS). My expertise extends from understanding the fundamental principles underlying DPS calculations to analyzing its implications for investors and businesses alike.

Let's delve into the key concepts mentioned in the article:

### 1. **Dividend Per Share (DPS):**

**Definition:**DPS represents the total dividends declared by a company per outstanding ordinary share.**Calculation:**It's computed by dividing the total dividends paid over a specific period (typically a year) by the number of outstanding ordinary shares.**Importance:**DPS serves as a crucial metric for investors, directly impacting their income from holding shares. Additionally, a consistent increase in DPS signals management's confidence in sustained earnings growth.

### 2. **DPS Formula:**

- The formula provided in the article is: ( \text{DPS} = \frac { \text{D} - \text{SD} }{ \text{S} } )
- ( \text{D} ) represents the sum of dividends over a specified period.
- ( \text{SD} ) stands for special, one-time dividends.
- ( \text{S} ) denotes the ordinary shares outstanding for the period.

### 3. **Special Considerations:**

**Payout Ratio:**It's the proportion of earnings distributed as dividends to shareholders, calculated by dividing dividends by earnings per share (EPS).**Retention Ratio:**Also known as the plowback ratio, it reflects the portion of earnings retained for reinvestment rather than distributed as dividends.

### 4. **Dividend Per Share Examples:**

- The examples provided illustrate how companies like Coca-Cola and Walmart have consistently increased their DPS over time, signaling robust performance to shareholders.

### 5. **Importance of DPS to Investors:**

- DPS is crucial for investors as it directly translates into shareholder income and serves as a straightforward indicator of dividend payments over time. Consistent DPS growth instills confidence in the company's earnings sustainability.

### 6. **Calculation of DPS:**

- It involves summing dividends over the entire year, excluding special dividends, and dividing by the total ordinary shares outstanding.

### 7. **Retention Ratio:**

- This ratio indicates the percentage of earnings retained for reinvestment, contrasting with the payout ratio, which measures dividends paid out to shareholders.

Understanding these concepts provides investors with valuable insights into a company's financial health and management's strategies regarding dividend distributions and reinvestment.