Investor Ratios measure how attractive public limited companies are for current and future shareholders to purchase. Dividend Per Share is one of them.
Buying shares in a company has the potential for two kinds of financial return. Capital gains can be made when the share price is rising – you buy when cheap and sell when expensive. In addition, companies pay annual dividends to shareholders – you get a part of the firm’s profit (unless profits are too low or losses are made).
Investor Ratios give an indication of the prospects for financial gain from both of these sources.
What does Dividend Per Share measure?
Dividend Per Share is ratio between Annual Dividends and Number of Shares Outstanding. It compares Annual Dividends with Number of Shares Outstanding.
Dividend Per Share measures the amount of money in the form of a dividend paid by a company to its shareholders for owning one share.
Dividend Per Share measures how much money in the form of a dividend is paid to shareholders for owning one share.
How to calculate Dividend Per Share?
The figures for working out Dividend Per Share can be found in Profit and Loss Account (P&L Account), The EDGAR System, the primary system for companies to file documents for The SEC (The U.S. Securities and Exchange Commission), Yahoo Finance, or any reliable stock broker:
| Annual Dividends | |||
| Dividend Per Share = | ━━━━━━━━━━━━━━━━━━━━ | ||
| Number of Shares Outstanding |
Example for Dividend Per Share
A company with 1,000,0000 Shares Outstanding that pays USD$2,000,000 in Annual Dividends pays USD$2 in Dividend Per Share on an annual basis. Dividend Per Share of USD$2 implies that shareholders are earning USD$2 return on their investment of owning one share.
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Dividend Per Share is expressed as a number in currency.
Dividend Per Share is a widely used metric to determine whether companies are doing well distributing money from their net earnings back to the business owners based on the number of shares they hold. Investors will gauge how much earnings from dividends they can receive compared to other companies in the same industry.
High Dividend Per Share means that the amount a firm pays out in dividends directly translates to higher income for the shareholder. Directors may decide to pay a dividend from reserves even when profits are low or a loss has been made in order to keep shareholder loyalty.
Low Dividend Per Share means that the amount a firm pays out in dividends directly translates to lower income for the shareholder. Directors may decide to reduce the annual dividend even if profits have not fallen in an attempt to increase retained earnings allowing further investment into expanding the business.
How to improve Dividend Per Share?
Improved Dividend Per Share ratio means higher Dividend Per Share. Shareholders will now get higher amount of money in the form of a dividend for owning one share:
1. Higher Annual Dividends. The company can increase the dividends paid out to shareholders. The directors should decrease the proportion of Retained Profit for future investment. In case increasing annual dividends is not possible, use alternative sources of finance. The alternative sources of finance may include tapping into Retained Profits from past years, selling assets, raising additional debt finance through long-term loans and bonds, and raising equity capital through issuing additional shares.
2. Less Shares Outstanding. The company, especially companies rich in cash, should buy back its own shares from the owners. Decreasing the Number of Shares Outstanding will increase EPS (Earnings Per Share) as more Net Profit After Interest and TAX will be now allocated to each common share.
Investor Ratios are of particular interest to current shareholders and prospective investors who need to assess the rate of financial return on shares and risk when making an investment to buy the shares.
