What is the relationship between EPS and dividend?

Question

What is the relationship between EPS and dividend?

Answer 1

No direct relationship. But the higher the EPS the better off the company and the more chances it has to pay dividends. So if EPS increases, earnings increase and the company has more to pay out as dividends (if it wants to)

Answer 2

There really isn't a relationship.

Dividends are paid out when the company feels that is the best use of its cash.   Generally, you'll see a company earn much more per share than it pays out, because it will want to reinvest its earnings in the business / make acquisitions / etc.  But, in the situation of a very mature company where the dividend is the main attraction for investors, you could see EPS dip below the dividend.  This wouldn't likely continue for a very long time, as it would be signaling that the Company isn't a good investment - it would be paying back more than it is making, but would eventually run out of reserves.

Answer 3

Companies like to keep earnings and dividends pretty stable. This is because changes in these elements signal broader changes for the company. An increase in dividend is usually a good indicator an increase in overall profitability of the company.

Companies also like to keep their Dividend Payout Ratio stable. The Dividend Payout ratio is the ratio of Dividends to Earnings. So, as earnings increase, so should dividends. But declaring a dividend is a choice and not an obligation.

Answer 4

The more EPS (Earnings per Share) generally means more dividend or pay out. Also, many expects that the stock that has constantly high and increasing dividends to also have constant growing EPS as it will attract more investors and also GENERALLY means the company is in good shape. However, if the company has scheduled to reinvest earnings, this could mean no dividends, although they can't do that indefinitely or they get investigated by the FCC. And some shady companies might attempt to attract investors by paying hefty dividends. Therefore, the relations is just a general rule of thumb and definitely not the absolute.