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.