- A share of earnings a company pays to its stockholders.
- A company provides preferred and common dividends. Preferred stockholders receive dividends paid at a fixed rate that are more than the common dividend. Preferred stocks resemble bonds and other debt instruments. A company is not required to pay dividends. In order to pay dividends, a company must have sufficient cash and retained earnings and must have approval from the board of directors.
DIVIDENT RATE - It describes how much cash a company returns to investors. - The dividend rate is simply the total amount of money you should receive from a stock or other dividend-yielding asset over the course of a year. Dividend rate is very simple math. Its not as popular for evaluating stocks as yield, which well cover here in a second, but if youre already in a stock, dividend rate can give you a good idea of the nominal amount you can expect to be paid in a given year. - The amount of dividends per share a company pays to stockholders over a period of time. - - If the board of directors of XYZ Company declares a quarterly dividend of 22 cents per common share, the quarterly dividend rate is $.22. Some companies pay quarterly dividends based on a stated annual dividend rate (in the example, the annual dividend rate would be $.88). Whether stated or not, a dividend rate is often annualized to present the most recent quarterly dividend on a full-year basis. For preferred stock, the dividend rate is usually expressed as a percentage of par value. For example, preferred shares with a $100 par value and a 6% dividend rate would pay dividends of $6 per year. Dividend rate is also commonly used by financial institutions and investment companies to describe income distributions. For a mutual fund, the dividend rate is the most recent rate at which the fund distributes dividend and interest income. For a credit union, the dividend rate is comparable to the interest rate paid on deposits at banks.
DIVIDEND YIELD - It describes the rate in terms of percentage. - This measurement tells you what percentage return a company pays out to shareholders in the form of dividends. Dividend Yield = Dividend per share/Price per share A stock that pays an annual dividend rate of $5 and is trading at $100 a share has a yield of 5 percent. An increase in the share price to $120 reduces the yield to about 4.1 percent. Increasing the dividend rate to $6 returns the yield to 5 percent. That percentage has a very important application its used as a proxy to measure return against competing assets, particularly other dividend stocks and bonds.
DIVIDEND PAYOUT RATIO - The ratio describes dividends paid as a percentage of total earnings. A higher ratio means that a company uses its earnings to pay more in dividends rather than for reinvestment. The ratio is a measure of whether a company can sustain its dividend rate. Companies with high ratios and little cash flow usually are not able to sustain a high rate and yield.
DPR = Dividends Per Share / Earnings Per Share
DIVIDEND PER SHARE - The DPR measures what a company pays out to investors in the form of dividends. - The sum of declared dividends for every ordinary share issued. Dividend per share (DPS) is the total dividends paid out over an entire year (including interim dividends but not including special dividends) divided by the number of outstanding ordinary shares issued.
DPS can be calculated by using the following formula: - D - Sum of dividends over a period (usually 1 year) SD - Special, one time dividends S - Shares outstanding for the period
EARNINGS PER SHARE - It represents the portion of a companys earnings, net of taxes and preferred stock dividends, that is allocated to each share of common shares. The figure can be calculated simply by dividing net income earned in a given reporting period (usually quarterly or annually) by the total number of shares outstanding during the same term. Because the number of shares outstanding can fluctuate, a weighted average is typically used. - To measure the companys profitability per unit of shareholder ownership
EPS = Net Earnings / Outstanding Shares For example, companies A and B both earn $100, but company A has 10 shares outstanding, while company B has 50 shares outstanding. Which companys stock do you want to own? Using our example above, Company A had earnings of $100 and 10 shares outstanding, which equals an EPS of 10 ($100 / 10 = 10). Company B had earnings of $100 and 50 shares outstanding, which equals an EPS of 2 ($100 / 50 = 2). So, you should go buy Company A with an EPS of 10, right? Maybe, but not just on the basis of its EPS. The EPS is helpful in comparing one company to another, assuming they are in the same industry, but it doesn t tell you whether it s a good stock to buy or what the market thinks of it. For that information, we need to look at some ratios
What Is the Difference Between a Dividend Rate & Dividend Yield? People buy stock to invest in a company. People can gain income from stocks that pay dividends. When considering what stock to purchase, investors should look at the dividend rate and the dividend yield. The dividend rate describes how much cash a company returns to investors. The dividend yield describes the rate in terms of percentage. Both relate to the dividend payout ratio. Definition of a Dividend A dividend is a share of earnings a company pays to stockholders. Stockholders have ownership interests in a company, and a company usually pays dividends in cash on a quarterly basis (a year has four quarters). A company provides preferred and common dividends. Preferred stockholders receive dividends paid at a fixed rate that are more than the common dividend. Preferred stocks resemble bonds and other debt instruments. A company is not required to pay dividends. In order to pay dividends, a company must have sufficient cash and retained earnings and must have approval from the board of directors. Definition of the Dividend Yield The dividend yield is determined with this equation: dividend per share/price per share. The yield is the percentage of a stock's market price a company returns in dividends. A stock that pays an annual dividend rate of $5 and is trading at $100 a share has a yield of 5 percent. An increase in the share price to $120 reduces the yield to about 4.1 percent. Increasing the dividend rate to $6 returns the yield to 5 percent. How the Dividend Yield and Rate Relate The dividend yield and dividend rate are related to the dividend payout ratio. The ratio describes dividends paid as a percentage of total earnings. It is calculated with the formula: dividend per share/earnings per share. A higher ratio means that a company uses its earnings to pay more in dividends rather than for reinvestment. The ratio is a measure of whether a company can sustain its dividend rate. Companies with high ratios and little cash flow usually are not able to sustain a high rate and yield. Frontier Communications Corp. is an example of a company that had to cut its dividend rate because the rate exceeded the cash flow DEFINITION of 'Dividend Per Share - DPS' The the sum of declared dividends for every ordinary share issued. Dividend per share (DPS) is the total dividends paid out over an entire year (including interim dividends but not including special dividends) divided by the number of outstanding ordinary shares issued.
DPS can be calculated by using the following formula:
D - Sum of dividends over a period (usually 1 year) SD - Special, one time dividends S - Shares outstanding for the period