What is dividend and earnings per share

Can a company pay a dividend that exceeds earnings per share?

Yes it is possible. Many companies have paid dividends in recent years even though earnings per share have been negative.

When determining a dividend, earnings per share are initially irrelevant. For example, companies that pay dividends despite low earnings per share may have set aside money for dividends in positive years.

The only important numbers when calculating dividends are retained earnings and available money. From the management's point of view, it makes sense to put some of the profit back on a monthly or yearly basis. Large reserves of this type enable a company to pay out constant dividends even in bad times. It also has money that can be invested in future corporate planning.

As a side note, it's also interesting that many investors are unaware that earnings per share are only calculated after dividends have been paid on high-yielding preferred stocks. This means that much of the dividend payments are already reflected in the EPS number that most investors see.

L’Oréal: French dividend championThe French cosmetics group L’Oréal is a European dividend champion that you should have on your dividend watch list. > read more


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