Earnings Per Share vs. Dividends Per Share: An Overview
Earnings per share (EPS) and dividends per share (DPS) are both reflections of a company's profitability, but that's where any similarities end. Earnings per share is a ratio that gauges how profitable a company is per share of its stock. Dividends per share, on the other hand, calculates the portion of a company's earnings that is paid out to shareholders. Both have their uses for investors looking to break down and assess a company's profitability and outlook.
- Earnings per share and dividends per share are both reflections of a company's profitability.
- Earnings per share is a gauge of how profitable a company is per share of its stock.
- Dividends per share, on the other hand, measures the portion of a company's earnings that is paid out to shareholders.
Earnings Per Share (EPS)
Earnings per share (EPS) speaks to a company's profitability and is one of the most popular metrics that analysts point to when evaluating a stock. EPS represents a company's net income allotted to each share of its common stock. Companies tend to report EPS that is adjusted for extraordinary items and potential share dilution.
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 stockholders for the last fiscal year, the EPS is 45 cents ($10 million - $1 million) ÷ (20 million shares outstanding).
There are both basic and diluted EPS. Basic EPS does not factor in the dilutive effect of shares that could be issued by the company. Diluted EPS does. When the capital structure of a company includes stock options, warrants, restricted stock units (RSU), these investments, if exercised, can increase the total number of shares outstanding. The diluted EPS assumes that all shares that could be outstanding have been issued.
Dividends Per Share (DPS)
DPS is the number of declared dividends issued by a company for every ordinary share outstanding. It is the number of dividends each shareholder of a company receives on a per-share basis. Ordinary shares, or common shares, are the basic voting shares of a corporation. Shareholders are usually allowed one vote per share and do not have any predetermined dividend amounts.
Dividends per share are calculated by dividing the total number of dividends paid out by a company, including interim dividends, over a period of time, by the number of shares outstanding. A company's DPS is often derived using the dividend paid in the most recent quarter, which is also used to calculate the dividend yield.
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 vs DPS
Earnings per share demonstrate how profitable a company is by measuring the net income for each outstanding share of the company.
EPS is generally considered to be the single most important variable in determining a share's price.
Dividends per share, on the other hand, calculate 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 the DPS.