When public companies make money, they often opt to share the wealth with stockholders in the form of dividends. Dividends are payments made to shareholders as a portion of a company's net income, and they're frequently made on a quarterly basis. The dividend per share represents how much cash a company pays in dividends for each share of issued common stock. The dividend per share is an important measure for investors, as it gives them insight as to how much of an income stream they might generate by investing in a given company.
Calculating dividend per share
Dividend per share is the total amount of declared dividends for every share of common stock issued. Dividend per share can be calculated using the following formula:
Dividend per share = (sum of dividends paid - special dividends) / shares outstanding
As an example, let's calculate the dividends per share for a given company over a one-year period. Let's say that company paid out $2 million in ordinary dividends over the course of the year plus $200,000 in the form of a special, one-time dividend, and it has 10 million shares outstanding. Here's the calculation for dividend per share:
($2 million - $200,000) / 10 million shares = $0.18/share
Dividend per share vs. earnings per share
Earnings per share is a measure of how a company's profit relative to the number of shares it has issued. It is calculated by taking the difference between a company's net income and dividends paid for preferred stock, and then dividing that figure by the number of shares outstanding.
Let's say a company has a net income of $10 million and pays out $1 million in dividends to preferred stockholders. Let's also say the company has 10 million shares outstanding. In this case, we'd calculate the earnings per share like this:
($10 million net income - $1 million in dividends) / 10 million shares = $0.90
Whereas earnings per share are an indication of a company's profitability based on its net income for each outstanding share it has issued, the dividend-per-share calculation represents the amount of dividends shareholders receive on a per-share basis. If a company produces an impressive dividend-per-share figure, investors are more likely to purchase its stock. This, in turn, can cause a company's stock price to rise. Analyzing a company's dividend per share over time can also give investors a sense of its financial strength and how profitable of an investment its stock might be.
Our Broker Center has choices galore if you're ready to dive into stocks.
This article is part of The Motley Fool's Knowledge Center, which was created based on the collected wisdom of a fantastic community of investors. We'd love to hear your questions, thoughts, and opinions on the Knowledge Center in general or this page in particular. Your input will help us help the world invest, better! Email us at firstname.lastname@example.org. Thanks -- and Fool on!
Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.