Earnings per share (EPS) is a ratio that gauges how profitable a company is per share of its stock. Dividends per share (DPS), on the other hand, calculates the portion of a company's earnings that is paid out to shareholders.
What Is Earnings per Share (EPS)?
Basic EPS is calculated as:
EPS = (net income - preferred stock dividends) ÷ (outstanding shares)
For example, if company ABCWXYZ has 20 million shares outstanding, had a net income of $10 million, and paid out a dividend of $1 million to its preferred stock holders for the last fiscal year; the EPS is 45 cents ($10 million - $1 million) ÷ (20 million shares outstanding).
What Is Dividends per Share (DPS)?
DPS is the amount of dividends that the shareholders of a company receive on a per-share basis. It is calculated using the total dividends paid out to shareholders over one fiscal year and the number of shares outstanding.
DPS can be calculated using the formula:
DPS = (total dividends paid out over a period - any special dividends) ÷ (shares outstanding).
For example, suppose company XYZ paid $1 million in dividends to its preferred shareholders last year, none of which were special dividends. The company has 5 million shares outstanding, so the DPS for company XYZ is 0.2 per share.
What Is The Difference Between Earnings-Per-Share And Dividends-Per-Share?
EPS Versus DPS
One can see that earnings per share and dividends per share differ from each other. The EPS calculates how profitable a company is by measuring the net income for each outstanding share of the company. It is generally considered to be the single most important variable in determining a share's price.
The DPS, on the other hand, calculates the portion of the company's earnings that is paid out to each preferred shareholder. Increasing DPS is a great way for a company to signal strong performance to its shareholders. For this reason, many companies that pay a dividend focus on adding to its DPS.