Gross Dividend Per Share

Gross Dividend per Share Dividends Dividend Income Dividend Payout Ordinary Shares Equity Investments Financial Metrics
The total of the gross dividends paid by a company in a year divided by the total number of ordinary shares on which the dividend is paid.
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Gross Dividend Per Share

The term “Gross Dividend Per Share” (GDPS) refers to the total amount of gross dividends a company pays over a given fiscal year, divided by the total number of ordinary shares that have received the dividend. Gross dividends are the total payout before any taxes or deductions.

Key Components

  1. Gross Dividends: The total amount of dividends declared and paid by the company to its shareholders.
  2. Ordinary Shares: Common equity shares of a company, which are eligible to receive dividends.

Formula

The formula for calculating Gross Dividend Per Share is:

\[ \text{Gross Dividend Per Share} = \frac{\text{Total Gross Dividends Paid}}{\text{Total Number of Ordinary Shares}} \]

Examples

  1. Example 1:
    A company declares gross dividends amounting to $500,000 in a financial year. If the company has 1,000,000 ordinary shares, the computation of GDPS is: \[ \text{GDPS} = \frac{500,000}{1,000,000} = $0.50 \] Thus, the Gross Dividend Per Share is $0.50.

  2. Example 2:
    If another company announces gross dividends totaling $1,500,000 and has 3,000,000 ordinary shares on which the dividends are paid, the GDPS will be: \[ \text{GDPS} = \frac{1,500,000}{3,000,000} = $0.50 \] Similarly, the Gross Dividend Per Share is $0.50.

Frequently Asked Questions

Q: What is the significance of Gross Dividend Per Share?
A: Gross Dividend Per Share offers an indication of the earnings returned to shareholders and helps investors gauge the return on their equity investments.

Q: How does GDPS differ from Net Dividend Per Share?
A: GDPS represents dividends before any taxes or deductions, while Net Dividend Per Share accounts for withholding taxes and other deductions.

Q: Can Gross Dividend Per Share fluctuate annually?
A: Yes, GDPS can fluctuate based on the company’s profitability, dividend policy, and number of outstanding shares.

Q: Is a higher GDPS always better?
A: While a higher GDPS generally signals strong profitability and shareholder returns, investors should also consider the company’s reinvestment strategy and overall financial health.

  • Dividend Yield: A financial ratio that shows how much a company pays out in dividends relative to its stock price.
  • Payout Ratio: The proportion of earnings a company pays to its shareholders in the form of dividends.
  • Earnings Per Share (EPS): A company’s profit divided by the number of outstanding ordinary shares.
  • Net Dividend: Dividends after taxes or any other deductions.

Online Resources

Suggested Books for Further Studies

  1. “The Intelligent Investor” by Benjamin Graham
  2. “Common Stocks and Uncommon Profits” by Philip Fisher
  3. “Security Analysis” by Benjamin Graham and David L. Dodd
  4. “Principles of Corporate Finance” by Richard A. Brealey, Stewart C. Myers, and Franklin Allen
  5. “Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports” by Thomas Ittelson

Accounting Basics: “Gross Dividend Per Share” Fundamentals Quiz

### What does Gross Dividend Per Share measure? - [x] The total gross dividends paid divided by the number of ordinary shares. - [ ] The net earnings per share. - [ ] The company's market value divided by its total shares. - [ ] The leftover profits after dividends. > **Explanation:** Gross Dividend Per Share measures the total gross dividends paid divided by the number of ordinary shares. ### What does GDPS not account for? - [ ] The number of ordinary shares. - [x] Taxes or deductions. - [ ] Total gross dividends. - [ ] Dividend policy. > **Explanation:** GDPS does not account for taxes or deductions; it represents the pre-tax or gross dividend figures. ### Which of the following is crucial for calculating GDPS? - [ ] Company’s total assets. - [x] Total number of ordinary shares. - [ ] Company’s debt. - [ ] Market value of shares. > **Explanation:** The total number of ordinary shares is crucial for calculating GDPS. ### Why might a company’s GDPS change? - [ ] Change in company’s debt ratio. - [ ] Variation in employee numbers. - [x] Change in dividends paid. - [ ] Shift in market strategies. > **Explanation:** A company’s GDPS changes due to variation in dividends paid, which can be influenced by company profitability and dividend policy. ### For investors, why is a higher GDPS advantageous? - [ ] It indicates a higher Earning Per Share. - [x] It signifies greater returns on their investments. - [ ] It often means lower company debt. - [ ] It always leads to higher stock prices. > **Explanation:** A higher GDPS signifies greater returns on investments, indicating that the company is returning more profits to its shareholders. ### When comparing GDPS, why should investors also look at the payout ratio? - [ ] To better understand the company’s debt levels. - [ ] To assess the number of ordinary shares. - [x] To gauge if the dividends are sustainable relative to earnings. - [ ] To determine the net value of assets. > **Explanation:** The payout ratio helps investors gauge if the dividends are sustainable relative to the company’s earnings. ### What indicates that GDPS is determined before deductions? - [x] The term “gross” in Gross Dividend Per Share. - [ ] The reliance on net earnings. - [ ] The adjustment for fluctuating market prices. - [ ] It considers both physical and financial assets. > **Explanation:** The term “gross” in Gross Dividend Per Share indicates that it is calculated before any deductions are made. ### How does an increase in the number of shares affect GDPS if dividends remain constant? - [ ] It remains unchanged. - [ ] It increases. - [x] It decreases. - [ ] It becomes negative. > **Explanation:** If the number of shares increases while the total dividends remain constant, the GDPS decreases as the same dividend amount is spread over more shares. ### Which report typically details GDPS? - [ ] Balance sheet. - [x] Dividend payout statement. - [ ] Cash flow statement. - [ ] Income statement. > **Explanation:** A dividend payout statement typically details GDPS, as it focuses on the dividends paid. ### Accurate calculation of GDPS allows investors to: - [x] Measure the relative return on their shares. - [ ] Predict market value fluctuations. - [ ] Determine company debt rates. - [ ] Estimate total company assets. > **Explanation:** Accurate calculation of GDPS allows investors to measure the relative return on their shares, aiding in investment decisions.

Thank you for embarking on this journey through our comprehensive accounting lexicon and tackling our challenging sample exam quiz questions. Keep striving for excellence in your financial knowledge!

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Tuesday, August 6, 2024
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