Dividends
Per Share (EPS)
- Dividends per share
represents the cash (or
property) paid on each share of
outstanding common
stock. Dividends per
share does not represent
the amount of profit
earned per share of
stock (EPS). When
calculating dividends
per share all you need
to do is divide
dividends paid by the
number of common shares
outstanding. The formula
for is:
Dividends
paid / number of shares
outstanding.
Investors need to be
aware of cash paid out
and the investment
management is making in
assets and growth. If
the company's net
investment rate is 1 or
higher and has a high
dividend payout ratio then the
company may be using
more cash than it is
generating. In cases
like this a further
analysis will need to be
conducted to determine
where the company's
sources of funds are
coming from. Unfortunately, many times
companies in this
situation are financing
payouts through increased debt.
