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.

1. Shareholder
Ratios

2. Shareholder ratios
Measure the returns
that shareholders
gain from their
investment

3. Dividend per share
Total dividends paid
Dividend 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. 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. 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. 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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