A:

Dividends per share (DPS) is the sum of all dividends a company pays out over a fiscal year divided by the number of outstanding shares. It is used to share a company's profits with its shareholders.

Causes of Decreased Dividends per Share

Some of the reasons a company's DPS may decrease include reinvestment in a firm's operations, debt reduction and poor earnings.

Reinvesting Profits

A company may decide to reinvest its profits into the development of new products or into core business assets. In this case, although a company retains some of its earnings, this action does not necessarily signal a company is in weak financial health. This reinvestment may actually lead to a higher DPS in the future.

For example, suppose company XYZ is a technology company that paid a DPS of $1.20 last year. However, for this year, it is planning to decrease its dividend to 60 cents per share to reinvest profits for the creation of a new software product. This reinvestment leads to a decrease in dividends in the short term.

Debt Reduction

A company may also decrease its dividends to reduce its debt.

For example, suppose company ABC has debt it must pay off before the end of next year. Last year, company ABC paid a dividend of $1.50 per share. However, this year it keeps some of its profits and reduces its dividend to 30 cents per share because it chooses to further pay down its debt. This leads to a decrease in DPS in the short term and may increase it in the long term.

Poor Earnings Performance

Poor earnings also contribute to a reduction in DPS. For example, suppose company ZYX reported a loss this year due to an economic downturn. Last year, ZYX paid a dividend of $2.00 per share. In this case, the company decides to remove its dividend because it does not have profits to disperse to its shareholders.

RELATED FAQS
  1. What is the difference between earnings per share and dividends per share?

    Learn what earnings per share and dividends per share are, how the two ratios are calculated, and the main difference between ... Read Answer >>
  2. Why do some companies pay a dividend, while other companies do not?

    There are several reasons why a company might pass some of its earnings on to shareholders as dividends rather than reinvest ... Read Answer >>
  3. Can dividends be paid out monthly?

    Find out how stocks can pay dividends monthly and learn about the types of industries or companies that will most likely ... Read Answer >>
  4. Cash Dividends or Stock Dividends: Which is better?

    The purpose of dividends is to return wealth back to the shareholders of a company. There are two types of dividends: cash ... Read Answer >>
Related Articles
  1. Investing

    How Dividends Affect Stock Prices

    Find out how dividends affect the underlying stock's price, the role of market psychology, and how to predict price changes after dividend declarations.
  2. Investing

    Why Dividends Matter To Investors

    There is much evidence as to why dividends matter for investors, profitability in the form of a dividend check can help investors sleep easily. Learn more.
  3. Investing

    How Dividend Reinvestment Grows Your Money Faster

    Dividend reinvestment is a smart strategy for growing your investments faster over the long term, but it’s not a get-rich-quick proposition.
  4. Investing

    Put Dividends to Work in Your Portfolio

    Find out how a company can put its profits directly into your hands.
  5. Investing

    3 Dividend Trends in the S&P 500 Index (TSN, LUV)

    Analyzing recent financial performance of companies demonstrating an inclination to issue consistent dividends to shareholders on a quarterly basis.
  6. Investing

    Got Dividends? Here's How to Reinvest Them

    Reinvesting dividends is a good idea if you intend to hold your shares for the long term.
  7. Financial Advisor

    How mutual funds pay dividends: An overview

    The process by which mutual fund dividends are calculated, distributed and reported is fairly straightforward in most cases. Here's a look.
  8. Investing

    5 Ways to Lose Money With a Dividend Reinvestment Plan

    Enrolling in a dividend reinvestment plan can backfire if you're not using it wisely, costing you money in the process.
RELATED TERMS
  1. Dividend Yield

    A financial ratio that shows how much a company pays out in dividends ...
  2. Reinvestment

    Reinvestment is using dividends, interest and any other form ...
  3. Forward Dividend Yield

    A forward dividend yield is an estimation of a year's dividend ...
  4. Cash-and-Stock Dividend

    A cash-and-stock dividend contains a portion of cash and a portion ...
  5. Dividend Policy

    Dividend policy structures the dividend payout a company distributes ...
  6. Capital Dividend

    A capital dividend is a type of payment a firm makes to its investors ...
Trading Center