Total Shareholder Return - TSR

What is 'Total Shareholder Return - TSR'

Total shareholder return (TSR) is the total return of a stock to an investor, or the capital gain plus dividends. TSR is the internal rate of return of all cash flows to an investor during the holding period of an investment. Whichever way it is calculated, TSR means the same thing: the total amount returned to investors.

BREAKING DOWN 'Total Shareholder Return - TSR'

When calculating TSR, an investor must account for only the dividends received during the period of stock ownership. For example, he may own the stock on the day the dividend is payable, yet he receives the dividend only if he owned the stock on the ex-dividend day. Therefore, an investor needs to know the stock’s ex-dividend date rather than the dividend payment date when calculating TSR. Dividends paid include cash payments returned to stockholders, stock buyback programs, one-time dividend payments and regular dividend payouts.

Pros and Cons of Total Shareholder Return

TSR is best used when analyzing venture capital and private equity investments. These investments typically involve multiple cash investments over the life of the business and single cash outflow at the end through an initial public offering (IPO) or sale.

Because TSR is expressed as a percentage, the figure is readily comparable with industry benchmarks or companies in the same sector. However, because the calculation is forward-looking, it reflects the past overall return to shareholders with no consideration of future returns.

TSR represents an easily understood figure of the overall financial benefits generated for stockholders. The figure measures how the market evaluates the overall performance of a company over a specific time period. However, TSR is calculated for publicly traded companies at the overall level, not at a divisional level. Also, TSR works only for investments with one or more cash inflows after purchase. In addition, TSR is externally focused and reflects the market’s perception of performance; therefore, TSR could be adversely impacted if a fundamentally strong company’s share price suffers greatly in the short term.

TSR does not measure the absolute size of an investment or its return. For this reason, TSR may favor investments with high rates of return even when the dollar amount of the return is small. For example, a $1 investment returning $3 has a higher TSR than a $1 million investment returning $2 million. Also, TSR cannot be used when the investment generates interim cash flows. In addition, TSR does not take into consideration cost of capital and cannot compare investments over different time periods.

RELATED TERMS
  1. Total Return

    When measuring performance, the actual rate of return of an investment ...
  2. Dividend Adjusted Return

    When a stock's return is calculated using not only the stock's ...
  3. Cash Dividend

    Money paid to stockholders, normally out of the corporation's ...
  4. Return

    The gain or loss of a security in a particular period. The return ...
  5. Dividend

    A distribution of a portion of a company's earnings, decided ...
  6. Capital Dividend

    A type of payment by a firm to its investors that is drawn from ...
Related Articles
  1. Markets

    The Pros and Cons of Executives' Pay Tied to Stock Performance

    Watch for situations where lavish executive compensation is either not justified by total shareholder return or rationalized by non-GAAP measures.
  2. Managing Wealth

    Understanding Total Returns

    Total return measures the rate of return earned from an investment over a period of time.
  3. Markets

    How Dividends Affect Stock Prices

    Find out how dividends affect the price of the underlying stock, the role of market psychology and how to predict price changes after dividend declaration.
  4. Managing Wealth

    Dividend Facts You May Not Know

    Discover the issues that complicate these payouts for investors.
  5. Markets

    Which Is Best: Cash Dividend Or Stock Dividend?

    Cash dividends are paid to shareholders when a company decides not to use the money for operations, but instead, transfer economic value to its shareholders.
  6. Managing Wealth

    5 Reasons Why Dividends Matter to Investors

    Learn five of the primary reasons why dividends are of significant importance for the overall performance of stock market investments.
  7. Investing

    Due Diligence On Dividends

    Understanding dividends and how they work will help you become a more informed and successful investor.
  8. Managing Wealth

    The Importance of Dividends in Your Portfolio

    Learn some of the primary reasons why dividends constitute a critical factor in the overall performance of a stock investor's portfolio.
  9. Investing

    The 3 Biggest Misconceptions of Dividend Stocks

    To find the best dividend stocks, focus on total return, not yield.
  10. Investing

    Why Dividends Matter

    Seven words that are music to investors' ears? "The dividend check is in the mail."
RELATED FAQS
  1. Which is more important - dividend yield or total return?

    Learn to distinguish between those times when dividend yield or total return is a more useful performance metric for a company's ... Read Answer >>
  2. Which is better a cash dividend or a stock dividend?

    The purpose of dividends is to return wealth back to the shareholders of a company. There are two main types of dividends: ... Read Answer >>
  3. What is the difference between yield and dividend?

    Learn how to differentiate between dividend yield and dividend return, and see why dividend yield is the more popular rate ... Read Answer >>
  4. Where exactly do dividends come from?

    Learn about sources of cash dividend, such as operational, financing and investing cash flows, as well as issuances of new ... Read Answer >>
  5. Can I receive dividends on ordinary shares of a company?

    Understand the basics of collecting dividend payments on ordinary shares, including when dividends can be paid and under ... Read Answer >>
  6. Are dividends considered an expense?

    Learn how dividends are accounted for and why cash or stock dividends on common or preferred shares are not considered an ... Read Answer >>
Hot Definitions
  1. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  2. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  3. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  4. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  5. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  6. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
Trading Center