Table of Contents

What is dividends per share and why does it matter to investors?

Types of dividends

Computing dividends per share

Ratios

Dividends per share vs. earnings per share

The bottom line

LearnDividendsWhat Is Dividend Per Share and How Is It Calculated?

What Is Dividend Per Share and How Is It Calculated?

Jun 21, 2022

·

7 min read

Dividends per share is the amount of money a company pays out in the form of dividends for each share. To derive this figure, the total amount paid in dividends is divided by the total number of shares outstanding.

Companies are in the business of making a profit. They’re also focused on what to do with the profit: hold it in cash, reinvest it in current operations or expansion, or pay it to shareholders as a dividend.

A dividend is like a reward to shareholders for keeping money invested in the company. It is typically expressed as a per-share value, just as a company’s profit is expressed in per-share terms.

What is dividends per share and why does it matter to investors?

Dividends per share is the amount of money a company pays out in the form of dividends for each share. To derive this figure, the total amount paid in dividends is divided by the total number of shares outstanding.

Dividends per-share is essential for investors because it is a key way to measure the return on their money. It is often used in calculations to value a stock and to compare the relative value of shares of different companies.

Dividends can be attractive to investors in several ways:

  • They represent a stream of income, which can increase regularly over time as companies demonstrate steady earnings growth. This is particularly important for investors as they reach retirement.
  • A regular dividend policy can signal to investors that the company is stable and won’t be reducing or eliminating dividends.
  • Dividends can be reinvested for further compounding of returns and building wealth.

Dividend-paying companies

Most large companies pay dividends—about three-quarters of those in the Standard & Poor’s 500 Index, for example—while about half of small-cap companies pay dividends. Older, well-established companies with more predictable earnings tend to be the most reliable dividend payers. Industries such as banking and finance, energy, health care, pharmaceuticals, and utilities have greater numbers of dividend-paying companies. Master limited partnerships and real estate investment trusts (REITS) pay large dividends because they operate under different tax regulations.

Investors should understand that while dividend payments are nice when they are steady, they are not guaranteed. Dividends are solely at the discretion of a company and its board of directors. Adverse events can cause companies to reduce or suspend dividends. Disney, for example, suspended dividends during the COVID-19 pandemic in 2020 and, as of January 2022, had not restarted them.

Some of the biggest companies in the S&P 500 don’t pay dividends. Among them are Alphabet (parent of Google), Amazon, Berkshire Hathaway, and Meta (Facebook). They choose to reinvest all their earnings to fuel further growth and a higher stock price.

Types of dividends

Most companies that pay dividends do so on a regular basis—usually quarterly in the U.S.—and almost all pay in cash.

Other forms of dividends include:

  • Stock dividends,

    through issuing new shares to current shareholders, on a pro rata basis. For example, a company declaring a 5% stock dividend would issue five new shares to a holder of 100 shares; a holder of 200 shares would get 10 new shares.

  • Special dividend,

    a one-time payment. Special dividends are rare, and happen when a company has accumulated a large amount of cash for which it has no immediate purpose. Notable examples include Microsoft, which in 2004 paid $32 billion, or $3 a share, when its regular quarterly dividend was 8 cents a share.

  • Spin-off,

    the distribution of shares of a subsidiary business into a separate publicly traded company, on a pro-rata basis to current shareholders. For example, if a company has a stock price of $200 and it spins off a subsidiary that represents 25% of its revenue and earnings, shareholders would now have a company share valued at $150 and a share of the spin-off valued at $50.

Common and preferred shares

Dividends usually are paid on two types of shares issued by companies:

  • Common shares,

    or ordinary shares. A common share is a unit of equity ownership interest in the company, with voting rights. Most companies have a single class of common shares; some have dual classes with one class having more voting rights than the other.

  • Preferred shares

    , which have no voting rights but are given priority in dividend payments—they get paid before any common-stock dividends. Typically the dividend is a fixed amount. For example, a 6% annual dividend on shares with a face value of $1,000 would pay $60. Preferred shares are a hybrid of a stock and bond. Few companies issue preferred stock.

Computing dividends per share

A company must first calculate its per-share earnings for the period (quarter or year), before deciding on a dividend. The formula is:

Earnings per share = Net income – preferred dividends/common shares outstanding

Net income minus preferred dividends will often appear on company income statements as “net income available to common shareholders.”

Then the company must decide on the payout ratio: what proportion of earnings should be paid as dividends. Let’s say a company has earnings per share of $10 and it decides on a 25% percent payout ratio. The dividend is then:

$10 X 0.25 = $2.50 per share

Companies usually cite a fully diluted number of common shares, which assumes that any stock options are exercised, increasing shares outstanding and thus diluting per-share earnings and dividends. It’s a more conservative accounting of per-share interests. Companies also calculate weighted average shares outstanding, to account for any changes in the number of shares during the period.

Let's say a company has earnings (also called net income or profit) of $100 million, and has 1 million shares outstanding. Then:

$100 million/10 million shares = $10 earnings per share (or EPS)

Now let’s assume the company decides to keep $90 million of the earnings to reinvest in its business. This is called retained earnings. The company decides to use the rest of the earnings, $10 million, to pay shareholders as a dividend. So:

$10 million/10 million shares = $1 per share dividend

At Titan, we are value investors: we aim to manage our portfolios with a steady focus on fundamentals and an eye on massive long-term growth potential. Investing with Titan is easy, transparent, and effective.

Loading...
Get Started

Ratios

Investors can use ratios to evaluate companies in various ways regarding earnings and dividends:

  • Dividend yield.

    This is the dollar amount of dividends expressed as a percentage of the current stock price. So if a company pays an annual dividend of $3 and its shares are trading at $100, the dividend yield is 3%. Investors can compare dividend yields among companies and industries, as well as compare dividend yields against bond yields. Dividend yields in the 2020s have been near record lows because share prices rose much faster than dividends. The aggregate dividend yield for the S&P 500 was 1.24% in 2021, the lowest in two decades.

  • Earnings yield.

    This is per-share earnings as a percentage of stock price. If earnings for the most recent year were $12 per share, and its stock price is $100, the earnings yield is 12%. An earnings yield much higher than a dividend yield may indicate that a company has held off in increasing its dividend.

  • Payout ratio.

    This is the percentage of earnings paid as dividends. A company that has $5 in per-share earnings and pays a dividend of 50 cents has a 10% ($0.5/$5) payout ratio. The average ratio among S&P 500 companies in 2021 was about 29%. Investors may regard lower payout ratios as a better starting point, with room to grow steadily over time. A much higher ratio could suggest a company is paying out too much to shareholders and might need to reduce the dividend and retain more earnings to invest in its business.

  • Retention ratio.

    This is the flip side of a payout ratio—the percentage of earnings retained by the company for reinvestment. A dividend payout ratio of 10% means a retention ratio of 90%, for example.

Alternatives to dividends

Companies have other ways of rewarding shareholders, including: 

  • Buybacks

    . A company’s repurchase of shares is another way of rewarding shareholders by reducing the number of shares outstanding, thus boosting earnings per share. Higher earnings per share can help boost the stock price.

  • Stock splits

    . There’s no immediate reward for shareholders in a stock split, but by lowering the share price, it may create new investor demand for the shares and thus boost the share price. A recent example is Alphabet, parent of Google, which announced a 20-for-1 split as its shares traded near $3,000. The split will mean a share price of about $150, making Alphabet shares affordable to more investors.

Dividends per share vs. earnings per share

Earnings per share is the amount of a company’s earnings (net income) allotted to each share outstanding. Dividends per share is the portion of earnings the company’s board decides to return to shareholders, usually as a cash payment. Companies review their dividend policies quarterly and annually, relative to trends in earnings and cash flow from company operations.

The bottom line

Dividends per share can be a source of income for investors, as well as a boost to long-term compounded returns if reinvested rather than spent. On the other hand, too much focus on dividend-paying companies might mean investors miss out on opportunities among companies that don’t pay dividends but soar in stock market value.

If you’re ready to start growing your capital, Titan is ready for you. Our team of exceptional investment analysts manage hundreds of millions of dollars, investing our clients in actively-managed, long-term strategies with an eye on massive growth potential. Through our award-winning app, you’ll ride shotgun with some of the smartest investment minds in the business. Sign-up takes minutes: get started today.

Disclosures

Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, Titan has not independently verified such information and makes no representations about the accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; Titan has not reviewed such advertisements and does not endorse any advertising content contained therein.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any strategy managed by Titan. Any investments referred to, or described are not representative of all investments in strategies managed by Titan, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.

Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see Titan’s Legal Page for additional important information.

Three Things, a newsletter from Titan

Stay informed on the most impactful business and financial news with analysis from our team.

You might also like

Are Reinvested Dividends Taxable?

Retirement accounts are the way investors can reinvest dividends that compound the growth of their nest eggs, while minimizing the impact of taxes.

Read More

What Is a Dividend Reinvestment Plan? Drip Investing Overview

DRIPs allow investors to use their dividends to buy more shares of the company or fund without having to actively initiate a transaction.

Read More

How to Calculate a Dividend Payout Ratio

The dividend payout ratio is that proportion of earnings a company decides to pay shareholders as dividends. The proportion it retains is called the retention ratio.

Read More

What Is a Disbursement? Definition & Examples

Disbursements are payments from a company or another payer and are generally issued to a smaller recipient in the forms of cash, check, electronic transfer, or other.

Read More

Cash Management

Smart Cash

Smart Cash FAQs

Cash Options

Get Smart Cash

InstagramTwitterYoutubeLinkedIn

© Copyright 2024 Titan Global Capital Management USA LLC. All Rights Reserved.

Titan Global Capital Management USA LLC ("Titan") is an investment adviser registered with the Securities and Exchange Commission (“SEC”). By using this website, you accept and agree to Titan’s Terms of Use and Privacy Policy. Titan’s investment advisory services are available only to residents of the United States in jurisdictions where Titan is registered. Nothing on this website should be considered an offer, solicitation of an offer, or advice to buy or sell securities or investment products. Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections are hypothetical in nature and may not reflect actual future performance. Account holdings and other information provided are for illustrative purposes only and are not to be considered investment recommendations. The content on this website is for informational purposes only and does not constitute a comprehensive description of Titan’s investment advisory services.

Please refer to Titan's Program Brochure for important additional information. Certain investments are not suitable for all investors. Before investing, you should consider your investment objectives and any fees charged by Titan. The rate of return on investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested, including principal. Brokerage services are provided to Titan Clients by Titan Global Technologies LLC and Apex Clearing Corporation, both registered broker-dealers and members of FINRA/SIPC. For more information, visit our disclosures page. You may check the background of these firms by visiting FINRA's BrokerCheck.

Various Registered Investment Company products (“Third Party Funds”) offered by third party fund families and investment companies are made available on the platform. Some of these Third Party Funds are offered through Titan Global Technologies LLC. Other Third Party Funds are offered to advisory clients by Titan. Before investing in such Third Party Funds you should consult the specific supplemental information available for each product. Please refer to Titan's Program Brochure for important additional information. Certain Third Party Funds that are available on Titan’s platform are interval funds. Investments in interval funds are highly speculative and subject to a lack of liquidity that is generally available in other types of investments. Actual investment return and principal value is likely to fluctuate and may depreciate in value when redeemed. Liquidity and distributions are not guaranteed, and are subject to availability at the discretion of the Third Party Fund.

The cash sweep program is made available in coordination with Apex Clearing Corporation through Titan Global Technologies LLC. Please visit www.titan.com/legal for applicable terms and conditions and important disclosures.

Cryptocurrency advisory services are provided by Titan.

Information provided by Titan Support is for informational and general educational purposes only and is not investment or financial advice.

Contact Titan at support@titan.com. 508 LaGuardia Place NY, NY 10012.