What is the Difference Between Dividends and Earnings Per Share?
🆚 Go to Comparative Table 🆚Earnings per share (EPS) and dividends per share (DPS) are both reflections of a company's profitability, but they serve different purposes and have distinct meanings.
Earnings Per Share (EPS):
- EPS is a gauge of how profitable a company is per share of its stock.
- It is calculated as a company's earnings (net income) minus preferred dividends, divided by the outstanding shares.
- EPS can be diluted by the introduction of new shares through secondary issues, convertible securities, or employee stock options.
- It is commonly used by investors to estimate the value of a company per share.
Dividends Per Share (DPS):
- DPS measures the portion of a company's earnings that is paid out to shareholders.
- It is calculated as the total amount paid in dividends divided by the total number of shares outstanding.
- DPS shows whether the dividends are growing or not.
- Investors can use ratios, such as the price-to-earnings (P/E) ratio, to evaluate companies in various ways regarding earnings and dividends.
In summary, EPS is a measure of a company's profitability per share, while DPS represents the portion of earnings paid out to shareholders as dividends. Both metrics are useful for investors to assess a company's financial health and make informed investment decisions.
Comparative Table: Dividends vs Earnings Per Share
Here is a table comparing Earnings Per Share (EPS) and Dividends Per Share (DPS):
| Feature | Earnings Per Share (EPS) | Dividends Per Share (DPS) |
|---|---|---|
| Definition | EPS is a ratio that gauges how profitable a company is per share of its stock. | DPS calculates the portion of a company's earnings that is paid out to shareholders. |
| Calculation | EPS = (Net Income - Preferred Dividends) / Common Shares Outstanding. | DPS = (Total Amount Paid in Dividends) / Total Number of Shares Outstanding. |
| Purpose | EPS serves as a profitability indicator and is used to assess a company's performance. | DPS is used to measure the portion of earnings that is paid out to shareholders and helps investors evaluate the company's dividend policy. |
| Relationship | EPS is a measure of the company's profitability per share, while DPS measures the portion of earnings paid out to shareholders. | The relationship between EPS and DPS is determined by the company's payout ratio, which indicates the proportion of earnings paid as dividends. |
In summary, EPS and DPS are both reflections of a company's profitability, but they serve different purposes. EPS is a gauge of how profitable a company is per share of its stock, while DPS measures the portion of earnings that is paid out to shareholders.
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