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Dividends Per Share - Overview, Explanation, Formula, Step by Step Calculation with Examples - YouTube
Channel: WallStreetMojo
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hello everyone hi welcome to the channel
of WallStreetmojo friends today we are going learn
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to learn a new topic
that's called dividend per share formula
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we are going to learn the formula the
interpretation part and also with an
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example so let's get into the
nitty-gritty of the same the dividend
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per share formula is basically the
annual dividend which the company that
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pays divided by the purchase price of
the share so let's understand this
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formula now before an investor it
calculates the dividend yield okay this
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is a new word to build a yield is
basically the percentage at the stock
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she or she needs to know the dividend
per share which he or she calls as DPS
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that's the dividend per share right so
the dividend again I'll decide for you
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over here so that we don't have problem
the dividend per share formula is equal
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to your annual dividend divided by the
number of shares so since the
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calculation is done after the dividend
is being paid an investor will only get
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to know the past records now for example
if an investor wants to know the DPS of
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the company he will have to look at the
data of the latest your and and and also
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the following year so let's start
understanding this formula with the help
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of an example let's take a practical
example to illustrate the dividend per
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share formula let's say there is a
company called honey bee company then
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they have paid an annual dividend as
$20,000 the beginning outstanding the
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beginning outstanding stock is was was
let's say $4,000 and the ending stock
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which was standing at $7,000 so what we
need to calculate over here is the
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dividend per share of honey bee company
in this example we can go for a simple
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average
a simple average to find out the average
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outstanding shares the beginning
outstanding stock was 4000 and
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the ending was 7000 so average
will be divided by two it's going to be
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5500 over here we
have used a simple average and this is
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our final answer
the annual dividend that was been paid
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was 20000 so we'll get the
number here and pulled out the number
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here and finally using the DPS formula
we get DPS formula is equal to your
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annual dividend divided by the number of
shares which is going to be is equal to
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20000/5500 or you can take directly
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the numbers from here it's 3.64
per share so now if we want to
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find out the dividend yield of the
company we can do so we need to just
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keep in mind that a lower dividend per
share or DPS does not mean that the
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company has no growth potential we need
to know that dividend yield and other
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financial measures to ensure whether the
company has enough growth potential or
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not let's understand the explanation
part of the dividend per share formula
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now in the in this in this formula the
dividend per share the most important
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part is the number of shares you can
simply take the record of the beginning
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shares and you can take the record of
the ending shares and calculate the
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simple average outstanding shares or
else you can you can also go for the
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weighted average you can go for the
weighted average of of the number of
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shares so in dividend per share we take
what annual dividend and in the case of
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the EPS earning per share we use the net
income this is for DPS we take annual
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dividend
so the use of the weighted average
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method is true for those companies the
weighted average method of an method is
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used for those basically the companies
that have paid the dividend for the
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existing shares like in January and
issues new shares in December so you can
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get an idea depending upon the approach
the company and and we may choose to
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calculate the method now what is exactly
the use of this particular formula see
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any investor would look at different
stocks to find out in which he should
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invest in for that investor looks at
different ratios no only DPS may not
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provide over an outlook for the company
but if an investor can look at the other
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financial ratios along with the dividend
payout ratio like you can see the
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dividend yield and DPS he or she would
have a solid understanding of the
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company now if an investor sees that the
dividend payout ratio of the company is
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if it is lower that means that that
basically means that the company is
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three investing more to increase the
value of the company now before investor
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ever decides to invest he or she needs
to look at all the measures to find out
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the holistic view of the financial
affairs now this is the graph that I
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wanted to show you for the three
companies that have been taken this is
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just a practical example that has been
taken to make you understand that what
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exactly company do in in real life
there's this company called Colgate
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Colgate a dividend per share as you can
see right from 2008 or 9 onwards till
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2016 it has continuously increased its
dividend payout ratio it started from
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0.5 that was just 0.5 dollar per share
then it moved on to you can say at least
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around 1.5 and of 1.6 to 1.6 Per share
that's a continuous increase but at a
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reducing way it's not us a complete rise
in the dividend but if we see in terms
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of Amazon
Google they don't pay dividend at all so
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that means they can be only two
situations either the company's really
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doing bad they have complete bad losses
or the company is plowing back its funds
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or the amount of the funds there that
they have earned they are not paying at
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all and they are reinvesting in the
company's assets or for investments
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which the company may do in the future
course so Amazon and Google such type of
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companies are not paying it that means
the their plough back is 100% and the
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dividend payout ratio is zero possible
there is a company called Jet Airways
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they are paying they are not actually
paying the dividends because they have
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negative earnings but some companies if
they really want to be the dividend in
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spite of the negative earnings then they
have to follow some rules and regulation
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you know and in some of some of the
criteria for the same as like you know
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you can pay the dividend only after
paying the dividend for the past years
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if that has been outstanding and you can
pay only the average or dividend at the
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average percentage of the last 3
years from your resolves itself now this
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is basically the calculator for the
dividend per share you can put some
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numbers over here annual dividend let's
say they are paying 20000
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let's say $200 per share
let's say 200000 as a total amount
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they're paying as dividend okay two
million and they have total 1 million in
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their shares have increased one more
number here so that means two per share
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so as the dividend is going to reduce
the dividend per share is going to
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reduce because the number of shares are
going to be same in if there is an
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increase then the amount can change over
here so what you can do you can do some
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permutation and combination come out
with some really good conclusion that
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very exactly goes the direct
relationship and where exactly it goes
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the inverse relationship I hope you have
got a really great insight regarding the
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dividend per share formula
thank everyone choose
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