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.