Total shareholder return definition
/What is Total Shareholder Return?
Total shareholder return is the profit generated from all capital gains and dividends from a company’s shares during a holding period. This measure is used by investors to determine the gains generated from their share holdings.
How to Calculate Total Shareholder Return
To calculate total shareholder return, determine the change in stock price over the measurement period, and then add the total amount of dividends received during that period. The formula (on an annual basis) is:
(Ending stock price - Beginning stock price) + Sum of all dividends received during the measurement period
= Total shareholder return
The total return can then be divided by the initial purchase price to arrive at a total shareholder return percentage.
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This measurement can be skewed to a considerable extent if a shareholder has control over a business. If this is the case and the company is sold, then the shareholder will likely be paid a control premium in exchange for giving up control over the entity.
Example of Total Shareholder Return
An investor purchases shares of Albatross Flight Systems for $15.00 per share. One year later, the market value of the shares is $17.00, and the investor has received several dividends totaling $1.50. Based on this information, the total shareholder return is:
($17.00 Ending stock price - $15.00 Beginning stock price) + $1.50 Dividends received
= $3.50 Total shareholder return
Based on the initial $15.00 purchase price, this represents a 23.3% total shareholder return.
