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. Cash Dividend

    Cash dividend is the money paid to stockholders normally as a ...
  2. Dividend Adjusted Return

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

    A dividend is a distribution of a portion of a company's earnings, ...
  4. Dividend Rate

    The dividend rate is the total expected dividend payment from ...
  5. Cash-and-Stock Dividend

    A cash-and-stock dividend contains a portion of cash and a portion ...
  6. Unpaid Dividend

    A dividend that is owed to stockholders of record but has yet ...
Related Articles
  1. Investing

    Declarations, Ex-Dividends and Record Dates

    Understanding the dates of the dividend payout process can be tricky. We clear up the confusion.
  2. Investing

    The 3 Biggest Misconceptions of Dividend Stocks

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

    Put Dividends to Work in Your Portfolio

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

    Understanding Taxes on Mutual Funds Dividends

    Learn about the basics of mutual fund dividend taxation, including how and why mutual funds pay dividends and when different tax rates apply to dividend income.
  5. Investing

    The Top 5 Dividend Paying Oil Stocks for 2016

    Discover the top five dividend-paying oil companies for 2016 and what factors contribute to their ability to continue dividend payments.
  6. 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.
  7. Investing

    6 Winning Ways for Successful Dividend Investing

    There are some important rules to maximize dividend investing value.
RELATED FAQS
  1. 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 >>
  2. 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 >>
Hot Definitions
  1. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  2. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  3. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  4. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  5. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  6. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
Trading Center