Interpreting Accounts - Shareholder Ratios

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A brief introduction here to two key ratios that focus on the returns that shareholders earn from their investment - dividend per share and dividend yield.

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Interpreting Accounts - Shareholder Ratios

  1. 1. Shareholder Ratios
  2. 2. Shareholder ratiosMeasure the returns that shareholders gain from their investment
  3. 3. Dividend per share Total dividends paidDividend per share (£) = Number of ordinary shares in issue Example Example Dividends paid = £460,000 Dividends paid = £460,000 Number of shares = £500,000 Number of shares = £500,000 Dividend per share = £0.92 Dividend per share = £0.92
  4. 4. Evaluating dividend per share• Interpreting the results – A basic calculation of the return per share• The problem with this ratio: we don’t know – How much the shareholder paid for the shares – i.e. what the dividend means in terms of a return on investment – How much profit per share was earned which might have been distributed as a dividend
  5. 5. Dividend yield Dividend per share (pence)Dividend per share (£) = Share price (pence) Example Example Dividend paid in 2012 = 92 pence Dividend paid in 2012 = 92 pence Average share price = 1,415 pence Average share price = 1,415 pence Dividend yield = 6.5% Dividend yield = 6.5%
  6. 6. Evaluating dividend yield• Interpreting the results – Annual yield can be compared with: • Other companies in the same sector • Rates of return on alternative investments – Shareholders look at dividend yield in deciding whether to invest in the first place – Unusually high yield might suggest an under-valued share price of a possible dividend cut!
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