The term dividends per share (DPS) refers to the total dividend a company pays out over a 12-month period, divided by the total number of outstanding shares. A company uses this calculation to share profits with its shareholders. DPS can indicate how profitable a company is over a fiscal period.

DPS can tell an investor about the company's past financial health and its current financial stability. For example, suppose company ABC had a DPS of 60 cents last year, but this year, it doesn't pay a dividend to its shareholders. This can signal to investors the company may be in poor financial health and cannot withstand the current market conditions. A decrease in DPS can cause investors to sell their stake in the company, thus driving the market value of ABC down.

However, a decrease in dividend per share does not always signal a company is not financially stable. For example, suppose ABC did not pay out a dividend to its shareholders because it is using its profit to reinvest into the company to create a new product. This reinvestment into the business can potentially produce higher dividends in the long term.

Suppose company YXZ has been paying a steady dividend of 90 cents per share. The next year, company YXZ raises its dividend to $1.10 per share. This signals the company is financially stable and performing well in its current market condition. An increase in DPS also signals the management team is confident in the company's future profits.

(For related reading, see "What Is the Difference Between Earnings per Share and Dividends per Share?")

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