Dividend per share

Dividend per share is a measure of the dividend payout per share of a company’s common stock. The measure is used to estimate the amount of dividends that an income investor might expect to receive if he or she were to buy a company's common stock. The measure is especially effective when tracked on a trend line, since a consistent amount per share indicates management's willingness to make consistent payouts to investors. In addition, an increasing trend of dividends paid indicates management’s belief that the business has sufficiently robust cash flow to support dividend payments. The dividend per share formula is as follows:

(Sum of all periodic dividends in a year + Sum of all special dividends in a year) ÷ 
Weighted average number of common shares outstanding during the year

For example, a business issued $10,000,000 of quarterly dividends in the past year, plus an extra one-time $2,000,000 special dividend. During that period, the business had a weighted average of 3,000,000 shares of common stock outstanding. Based on this information, its dividend per share is:

$12,000,000 Total dividends paid ÷ 3,000,000 Shares = $4.00 Dividend per share

An argument can be made that special dividends should be excluded from the aggregation of dividends paid per year, if the intent is to project what the dividend per share will be in a future period. This is because there is no assurance that these special dividends will be issued again.

This measure is not commonly used by growth investors, who are more concerned with the intentions of management to plow funds back into operations, thereby increasing the value of the company and the price per share.

Related Courses

Business Ratios Guidebook 
The Interpretation of Financial Statements