How to Calculate Dividend Per Share and Dividend Yield
Learn how to calculate dividend per share and dividend yield for A Level Business, with clear formulas, a worked example and a common exam mistake to avoid.
To calculate dividend per share, divide the total dividend paid to ordinary shareholders by the number of ordinary shares. To calculate dividend yield, divide the dividend per share by the share price, then multiply by 100100100 to express it as a percentage.
The formulas
A dividend is a payment a company makes to shareholders from its profits. Dividend per share shows how much is paid for each ordinary share:
Dividend per share=Total ordinary dividendsNumber of ordinary shares\text{Dividend per share} = \frac{\text{Total ordinary dividends}}{\text{Number of ordinary shares}}Dividend per share=Number of ordinary sharesTotal ordinary dividendsDividend yield compares that payment with the price of a share:
Dividend yield=Dividend per shareShare price×100%\text{Dividend yield} = \frac{\text{Dividend per share}}{\text{Share price}} \times 100\%Dividend yield=Share priceDividend per share×100%Both figures help investors assess shareholder returns. Dividend per share gives an absolute cash amount, while dividend yield gives a percentage that can be compared with the share price. A higher yield may appear attractive, but it does not automatically mean the business is performing well. The share price might have fallen, or the dividend may not be sustainable if profits and cash flow are weak.
Worked example
Suppose a company pays £240,000\pounds 240{,}000£240,000 in ordinary dividends, has 120,000120{,}000120,000 ordinary shares and has a share price of £40\pounds 40£40.
First, calculate the dividend per share:
£240,000120,000=£2\frac{\pounds 240{,}000}{120{,}000} = \pounds 2120,000£240,000=£2Then calculate the dividend yield:
£2£40×100%=5%\frac{\pounds 2}{\pounds 40} \times 100\% = 5\%£40£2×100%=5%Each ordinary share receives a £2\pounds 2£2 dividend. That dividend is equivalent to 5%5\%5% of the share price used in the calculation.
In an exam, state what the answer means in context. For example, a yield of 5%5\%5% means the annual dividend equals 5%5\%5% of the share price. It does not mean shareholders own 5%5\%5% of the company or receive 5%5\%5% of total profit.
Common mistake: Do not divide the total dividend by the share price when finding dividend yield. Work out the dividend per share first. Also keep the units consistent: if the dividend is in pence, convert it to pounds or use the share price in pence. Dividend yield describes the dividend relative to the share price; it does not include any gain or loss from a change in that price.
