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Dividends per share: Examples, formula, how to calculate DPS
Are you unsure about the concept of dividends per share and how it impacts your investment strategy? Don't miss out on potential income opportunities and the chance to make informed investment decisions.
This is a comprehensive overview of dividends per share, from the formula and calculation methods to their significance in real-world examples.
This article is for educational purposes only. Note that past performance doesn’t guarantee future results.
This is a comprehensive overview of dividends per share, from the formula and calculation methods to their significance in real-world examples.
This article is for educational purposes only. Note that past performance doesn’t guarantee future results.
QUOTE
"Dividends may not be the only path for an individual investor's success, but if there's a better one, I have yet to find it."
Big ideas
- Dividends per Share (DPS) is the per-share basis of the amount of dividends you receive from a company. You can calculate your expected dividend income by knowing the number of shares you own and the DPS.
- The formula for calculating DPS is dividing the total amount of dividends paid by the company to its shareholders by the total number of outstanding shares.
- Share repurchases result in fewer shares in circulation, which can increase the dividend amount per remaining share.
What DPS stands for and its significance
By knowing how to calculate DPS, investors can evaluate the dividend-paying capacity of a company and make informed investment decisions.
FORMULA
Dividends per share (DPS) = Total Dividends Paid / Total Number of Outstanding Shares
To put it into perspective, let's consider an example.
EXAMPLE
Suppose the fictional company DiviToMe paid £1 million in dividends. It has 100,000 outstanding shares.
By applying the DPS formula, we can determine the DPS as £10 per share
(£1,000,000 / 100,000) = £10
By applying the DPS formula, we can determine the DPS as £10 per share
(£1,000,000 / 100,000) = £10
Calculating DPS allows investors to gauge the amount of income they can potentially receive for each share they own. It serves as an essential metric for dividend-focused investors who seek regular cash flow from their investments.
When looking at anything in investing, the more data you have, the better informed your decision. When looking at the dividend payout for different companies, look at their track record over 10 years or more. With that logic, we have compiled a table of the stocks with the highest average dividend per share over 10 years (between 2010 and 2020).
Stock | Ticker | 2010 DPS | 2011 DPS | 2012 DPS | 2013 DPS | 2014 DPS | 2015 DPS | 2016 DPS | 2017 DPS | 2018 DPS | 2019 DPS | 2020 DPS | Average 10-Year DPS |
IBM | $4.25 | $4.40 | $4.63 | $4.76 | $5.12 | $5.24 | $5.32 | $5.56 | $5.78 | $6.04 | $6.30 | $5.06 | |
MCD | $2.44 | $2.87 | $2.97 | $3.24 | $3.59 | $3.91 | $4.21 | $4.62 | $4.92 | $5.03 | $5.07 | $3.56 | |
CVX | $3.09 | $3.24 | $3.51 | $3.90 | $4.18 | $4.33 | $4.37 | $4.46 | $4.88 | $4.76 | $5.04 | $3.31 | |
JNJ | $2.29 | $2.51 | $2.68 | $2.80 | $2.94 | $3.10 | $3.23 | $3.42 | $3.55 | $3.77 | $4.02 | $2.98 | |
PEP | $1.91 | $1.94 | $2.05 | $2.18 | $2.29 | $2.41 | $2.54 | $2.68 | $2.81 | $3.01 | $3.14 | $2.75 | |
PG | $2.16 | $2.34 | $2.47 | $2.55 | $2.66 | $2.75 | $2.83 | $2.93 | $3.05 | $3.21 | $3.38 | $2.76 | |
XOM | $1.64 | $1.85 | $1.91 | $2.03 | $2.28 | $2.62 | $2.70 | $2.70 | $2.84 | $2.98 | $3.16 | $3.48 | |
VZ | $1.92 | $2.01 | $2.12 | $2.20 | $2.32 | $2.43 | $2.46 | $2.49 | $2.52 | $2.55 | $2.58 | $2.52 | |
T | $1.65 | $1.71 | $1.77 | $1.81 | $1.87 | $1.92 | $1.97 | $2.01 | $2.04 | $2.08 | $2.10 | $1.98 | |
KO | 1.64 | $1.79 | $1.88 | $1.94 | $2.02 | $2.10 | $2.18 | $2.25 | $2.30 | $2.42 | $2.44 | $1.86 |
While these examples are for illustrative purposes only, it is important to remember that past performance is no guarantee of future results
These examples showcase companies that have a strong dividend history and offer attractive dividend per share opportunities. It is important to note that the selection of stocks should be based on individual research and investment goals. Investors should carefully consider factors such as a company's financial health, dividend sustainability, and overall investment strategy before making any investment decisions.
These examples showcase companies that have a strong dividend history and offer attractive dividend per share opportunities. It is important to note that the selection of stocks should be based on individual research and investment goals. Investors should carefully consider factors such as a company's financial health, dividend sustainability, and overall investment strategy before making any investment decisions.
While dividends per share (DPS) can provide a steady stream of income to investors, it's important to understand that dividend payments are not always guaranteed and can fluctuate over time. Several factors can influence decreases in DPS.
Factors Influencing Decreases in Dividends per Share | Description |
1. Declining profits | Decreased company profitability can impact its ability to maintain or increase dividend payments. |
2. Financial instability | Unstable financial conditions, such as liquidity issues. |
3. Increased debt | Higher debt obligations can strain a company's cash flow. |
4. Competitive pressure | Intense competition within the industry may require companies to conserve cash. |
5. Regulation | Changes in regulatory requirements or restrictions can impact a company's dividend policy. |
6. Recession | During economic recessions or downturns, companies may experience lower earnings. |
7. Industry disruption | Disruptive events or technological advancements can impact industry dynamics, leading to dividend decreases. |
8. Cash flow constraints | Insufficient cash flow or investment needs may limit a company's ability to maintain previous dividend levels. |
9. Management priority change | Shifts in strategic priorities, such as capital investment or debt reduction, can result in reduced dividend payouts. |
10. Dividend policy | Companies may adjust their dividend policies based on changing circumstances or the need to retain earnings. |
Past performance doesn’t guarantee future results.
Just remember that decreases in DPS can occur for various reasons and are not always a reason to change your mind about a company's long-term prospects.
Just remember that decreases in DPS can occur for various reasons and are not always a reason to change your mind about a company's long-term prospects.
Strategies during decreases in DPS
Experiencing a decrease in dividends per share (DPS) can be disappointing for investors who rely on dividend income. However, there are tactics that investors can employ in these challenging times.
- Diversify your portfolio
If you spread your investments across different sectors and asset classes, you can go some way towards offsetting the negative effect of any one stock or industry cutting dividends with the performance of other investments. - Switch to dividend growth stocks
When there seems to be a broad trend of temporary decreases in DPS, there are some companies that have a track record of consistently increasing their dividends over time. The top of the pack is the dividend aristocrats, which have a history of steadily increasing their dividend payments for over 25 years. - Seek Opportunities for Capital Appreciation
During periods of decreased DPS, investors may shift their focus toward capital appreciation opportunities. Identifying companies with strong growth prospects means your portfolio can lead more towards investments where the price has greater potential to rise than those with an income stream attached.
Pros and cons of using DPS for choosing dividend stocks
Using dividends per share (DPS) as a criterion for selecting dividend stocks can offer advantages and considerations for investors. Let's explore the pros and cons of incorporating DPS as a criterion when choosing dividend stocks.
Pros:
✔️ By considering DPS, investors can specifically target stocks that offer higher dividend payments on a per-share basis.
✔️ DPS allows for easier comparison of dividend payments across different companies.
✔️ DPS can be used in conjunction with the stock's current market price to calculate the dividend yield.
✔️ DPS allows for easier comparison of dividend payments across different companies.
✔️ DPS can be used in conjunction with the stock's current market price to calculate the dividend yield.
Cons:
❌ Relying solely on DPS as a criterion for choosing dividend stocks may overlook other important factors, such as a company's financial health, growth prospects, and sustainability of dividend payments.
❌ A singular focus on DPS may lead to a short-term perspective, where immediate income potential takes precedence over long-term growth and capital appreciation.
❌ It does not guarantee dividend stability. Companies can face changes in their financial situation, industry dynamics, or market conditions that may impact their ability to sustain or increase dividend payments.
❌ A singular focus on DPS may lead to a short-term perspective, where immediate income potential takes precedence over long-term growth and capital appreciation.
❌ It does not guarantee dividend stability. Companies can face changes in their financial situation, industry dynamics, or market conditions that may impact their ability to sustain or increase dividend payments.
Again, DPS should be used as one of several criteria when evaluating dividend stocks.
In addition to dividends per share (DPS), companies have another method of distributing profits to shareholders: share repurchases. Understanding the relationship between share repurchases and DPS provides valuable insights into a company's capital allocation strategies and their impact on shareholders.
Share repurchases are an alternative method to dividends for a company to use earnings to return value to shareholders directly. When a company repurchases its shares, it reduces the number of outstanding shares in circulation. As a result, the earnings per share (EPS) increases because the same amount of earnings is distributed over a smaller number of shares.
Suppose a company chooses to repurchase shares and announces the same overall dividend payout. In that case, the remaining shareholders may benefit from an increased DPS since the dividend payout is distributed over fewer shares. However, if the company announces a specific earnings per share amount, this will not change, irrespective of the number of shares in circulation.
Share repurchases are an alternative method to dividends for a company to use earnings to return value to shareholders directly. When a company repurchases its shares, it reduces the number of outstanding shares in circulation. As a result, the earnings per share (EPS) increases because the same amount of earnings is distributed over a smaller number of shares.
Suppose a company chooses to repurchase shares and announces the same overall dividend payout. In that case, the remaining shareholders may benefit from an increased DPS since the dividend payout is distributed over fewer shares. However, if the company announces a specific earnings per share amount, this will not change, irrespective of the number of shares in circulation.
Using DPS with dividend yield to find investment opportunities
By utilising these metrics effectively, investors can enhance their ability to find stocks that offer the potential for income generation and favourable returns.
Here's a table showcasing the share price, DPS (Dividends per Share), dividend yield, and annual share price performance for Apple (AAPL) stock between 2010 and 2020:
Here's a table showcasing the share price, DPS (Dividends per Share), dividend yield, and annual share price performance for Apple (AAPL) stock between 2010 and 2020:
Year | Share Price (Year End) | DPS | Dividend Yield | Annual Share Price Performance |
2010 | $46.08 | $0.41 | 0.89% | 53.02% |
2011 | $52.15 | $0.47 | 0.90% | 14.19% |
2012 | $76.02 | $1.82 | 2.40% | 44.62% |
2013 | $80.15 | $2.66 | 3.32% | 5.42% |
2014 | $110.38 | $1.88 | 1.70% | 37.70% |
2015 | $105.26 | $2.08 | 1.98% | -4.63% |
2016 | $115.82 | $2.28 | 1.97% | 10.03% |
2017 | $169.23 | $2.52 | 1.49% | 46.11% |
2018 | $157.74 | $2.92 | 1.85% | -6.79% |
2019 | $293.65 | $3.08 | 1.05% | 86.16% |
2020 | $132.69 | $0.82 | 0.62% | -54.79% |
Here are some steps you can take to utilise dividends per share and dividend yield when searching for good stocks:
Process for using DPS | Explanation |
Identify High DPS Stocks | Look for stocks with consistently high dividend per share (DPS) figures and a track record of consistent or growing DPS. |
Consider Dividend Yield | Evaluate the dividend yield of stocks relative to peers in the industry, aiming for a competitive yield without excessive risk. |
Evaluate Dividend Sustainability | Assess the company's financial health, cash flow generation, dividend history, and earnings growth to ensure sustainable dividend payments. |
Research Dividend History and Growth | Examine the company's track record of regular dividend increases, indicating a commitment to shareholder value and long-term investment potential. |
Consider Industry and Sector Factors | Assess industry dynamics and invest in sectors with favourable conditions for dividend-paying stocks, considering stability and growth prospects. |
Diversify Your Portfolio | Build a well-diversified portfolio of dividend-paying stocks across sectors and industries to mitigate risk and balance income generation and capital appreciation |
Recap
Knowing the DPS formula, and by evaluating DPS and dividend yield, investors can identify stocks with the potential for income generation and favourable returns. We have emphasised the need for comprehensive analysis, considering factors such as company fundamentals, dividend sustainability, and industry dynamics to complement these financial statistics when picking any stock to invest in.
FAQ
Q: What does DPS stand for?
DPS stands for Dividends per Share, representing the dividend income distributed to shareholders on a per-share basis.
Q: How is dividends per share determined?
Dividends per share are determined by dividing the total dividends paid by the number of outstanding shares of a company.
Q: Are dividends paid on a per-share basis?
Yes, dividends are typically paid on a per-share basis, with each shareholder receiving a portion of the dividend based on their share ownership.
Q: When are dividends paid on shares?
Dividends get paid on dates specified by the company and according to the rule set for public companies. They are known as the dividend payment dates.
Q: Where is the dividend per share information in the annual report
You can find this in the financial statements or the notes to the financial statements section. Note annual reports are available for all the stocks on the Trading 212 app.
Q: How is the dividend per share calculated?
By dividing the total dividend amount by the number of outstanding shares.
Q: How much dividend per share is considered good?
If you were only looking at the DPS in isolation, then the higher, the better. But each company has a DPS that is suitable to its own circumstances, including the number of outstanding shares, so there is no rule of thumb for this.
Q: What is the average dividend per share?
The average dividend per share is calculated by summing up the dividend per share for a specific period and dividing it by the number of periods.
Q: What do dividends per share tell you?
It’s simply how much income you can expect to receive every year per share that you own.
Q: Can dividends per share be negative?
No, companies can payout to shareholders but cannot demand any money back, which is what would be implied by a negative DPS.
