Dividend per share is a measure for the company’s financial performance. Corporate world widely uses this ratio for financial analysis purposes. It directly affects shareholders, and therefore it is a common question among shareholders and in their minds. How much is the dividend per share in my company? Or How much is the dividend per share in a prospective company?
Let’s first look at the simple formula of dividend per share:
Dividend per share = Dividend for the common stockholders / Number of shares outstanding
Let’s say that if the company announced a total dividend of $25,000 and the total number of common stock shares is 5,000 shares, then it means that for each share there is a dividend of $5 ($ 25,000 / 5,000 shares).
Shareholders prefer to receive a higher dividend payout. However, a higher dividend payout ratio is not a good indicator to measure the financial performance of a company. Sometimes, directors of a company may announce a higher dividend to keep shareholders happy and to conceal poor performance of the company. Better measures of the company’s performance are earnings per share and price-earnings ratio.
In contrast, sometimes, directors want to utilize the earnings of the company for future projects. In such cases, they would announce a lower dividend per share. This approach may not be welcomed by shareholders of the company, but it might be better for the company’s future as well as shareholders’ future. The more money kept in the company’s reserves and utilized wisely in future; the better would be the financial performance and financial position of the company.