Understanding the difference between dividend per share and dividend yield is crucial for investors who want to make informed decisions about how to effectively allocate their finances. Both are important metrics that can determine how much income an investor will generate from their investments, so it is essential to be able to differentiate between the two and recognize the nuances of each metric. In this blog post, we explore what exactly the difference is between dividend per share vs dividend yield and why they are both critical.
Key takeaways:
- Dividend yield is calculated by dividing the total annual dividend payments by the current stock price.
- Dividend per share is calculated by dividing the total annual dividend payments by the number of outstanding shares.
- Dividend yield and dividend per share are both important metrics for investors to consider when evaluating investments.
- Wisesheets can save you time by automating the process of calculating these metrics for hundreds of different securities at once.
- Understanding both of these metrics can help investors make informed decisions when selecting investments and deciding how to allocate their portfolio.
What is dividend yield?
Dividend yield is the total annual dividend payments divided by the current stock price. It measures how much of a return investors receive for each dollar invested in an individual security. In other words, it tells you how much money you would receive if you were to buy one share of that company's stock and hold onto it for an entire year. It is usually expressed as a percentage, and it can range from 0% to over 200%.
For example, Apple Inc is currently paying an annual dividend yield of 0.53%, while AT&T has a dividend yield of 6.72%. This means that for every dollar you invest in Apple, you will receive $0.0053 in dividends per year, while for every dollar invested in AT&T, you will receive $0.0672 in dividends per year.
What is dividend per share (DPS)?
Dividend per share (DPS) is the amount of cash paid to shareholders for each share they own. It is calculated by dividing the total annual dividend payments by the number of outstanding shares in the company. This means that it will give you an estimate of how much money each individual shareholder will receive in dividends over a given period. Therefore, DPS is usually expressed in dollar amounts rather than percentages.
For example, Apple Inc has a DPS of $0.96, while AT&T has a DPS of $1.12. This means that if you own one share of Apple stock, you will receive $0.96 each year in dividends; if you own one share of AT&T stock, you will receive $1.12 each year in dividends.
How to calculate dividend yield and dividend per share?
Calculating these important dividend metrics is easy. You just need to follow the formulas and steps below.
Dividend yield calculation
Dividend Yield = Annual Dividend Payments Per Share / Current Stock Price
To calculate dividend yield, you must divide the total annual dividend payments per share by the current stock price. For example, in 2022, Apple Inc paid $0.91 per share in dividends. To calculate the dividend yield, you would divide this number by Apple's current stock price of $175.05.
Apple dividend yield = $0.91 / $175.05
Apple dividend yield = 0.52%
This means that for every dollar you invest in Apple, you will receive $0.0052 in yearly dividends. Note that at any moment, the dividend paid quarterly by a company may change, so it is essential to keep checking the dividend yield of a company periodically. Increases or decreases in the dividend paid per share will directly affect the dividend yield.
Dividend per share calculation
Dividend per share = Annual Dividend Payments / Outstanding Shares
To calculate dividend per share, you must divide the total annual dividend payments by the number of outstanding shares. For example, in 2021, AT&T paid $9.859 billion in dividends and had 7.149 billion outstanding shares. To calculate their DPS, you would divide this number by AT&T's outstanding shares.
AT&T DPS = $9,859,000,000 / 7,149,000,192
AT&T DPS = $1.37
This means that if you own one share of AT&T stock, you will receive $1.37 in dividends each year.
Understanding the difference between dividend per share vs. dividend yield
Both dividend per share and dividend yield are essential metrics for investors to consider when evaluating investments. Dividend yield is a valuable tool for comparing different stocks or ETFs, as it will tell you how much of a return you can expect from each dollar invested in that security. On the other hand, DPS estimates how much each shareholder will receive in dividends over a given period.
Knowing both of these metrics can help investors make informed decisions when selecting investments and deciding how to allocate their portfolio.
Automatic Dividend yield and dividend per share
Rather than manually calculating both of these metrics for every single company you analyze. You can use the Wisesheets Excel and Google Sheets add-on to get these metrics and hundreds of others, including financials, dividend data, and live data.
For example, to get the dividend yield of a company, all you need to do is enter =WISE("ticker", "dividend yield", "ttm").
Altogether you can create dividend stock watchlists like this to your liking that allow you to spot divestment opportunities faster.
You can try this for yourself by creating a free Wisesheets account here.
Conclusion
Dividend per share and dividend yield are two critical metrics that allow investors to evaluate companies and make better investing decisions. DPS is useful for estimating how much money each individual shareholder will receive in dividends over a given period, while dividend yield helps compare different securities as it tells you how much of a return you can expect from each dollar invested.
Ultimately, understanding these metrics can help investors make informed decisions when selecting investments and deciding how to allocate their portfolio. Additionally, Wisesheets can save you time by automating the process of calculating these metrics for hundreds of different securities at once.
To your investing success!
