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Understanding Dividends Per Share (DPS)
Apr 29, 2025
Market Value Ratio: Dividends Per Share
Definition
Dividends per share (DPS) is an example of a market value ratio.
Formula:
DPS = Total Dividends / Shares Outstanding
Source of Data:
Total dividends distributed by the firm are found on the income statement.
Example Calculation (2018)
Total Dividends
: $2.5 million
Shares Outstanding
: 10 million shares
Calculation
:
DPS = $2.5 million / 10 million shares = $0.25 per share
Unit of Measurement
Dollars per share
Indicates that the company distributes $0.25 for every share outstanding.
Insights
Mature companies typically have a higher DPS.
Growth companies may have a lower DPS or no DPS at all.
Distributing dividends:
Sign of healthy cash flow
May indicate a lack of potentially profitable investment opportunities.
Conclusion
Understanding DPS is crucial for assessing a company's financial health and its strategy regarding profit distribution versus reinvestment.
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