Total shareholder return (TSR) (or simply total return) is a
measure of the performance of different companies'
stocks and
shares over time. It combines
share price
A share price is the price of a single share of a number of saleable equity shares of a company.
In layman's terms, the stock price is the highest amount someone is willing to pay for the stock, or the lowest amount that it can be bought for.
B ...
appreciation and
dividends paid to show the total return to the
shareholder expressed as an annualized percentage. It is calculated by the growth in capital from purchasing a share in the company assuming that the dividends are
reinvested each time they are paid. This growth is expressed as a percentage as the
compound annual growth rate
Compound annual growth rate (CAGR) is a business and investing specific term for the geometric progression ratio that provides a constant rate of return over the time period. CAGR is not an accounting term, but it is often used to describe some ele ...
.
The main benefit of TSR is that it allows the performance of shares to be compared even though some of the shares may have a high growth and low dividends and others may have low growth and high dividends.
Most
stock market indices only use the growth of the prices of the companies making up the index. However, when they use TSR for the companies it is called a
total return index A total return index is an index that measures the performance of a group of components by assuming that all cash distributions are reinvested, in addition to tracking the components' price movements. or accumulation index. For example, corresponding to the
S&P 500
The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices. As of ...
index calculated by
Standard and Poor's
S&P Global Ratings (previously Standard & Poor's and informally known as S&P) is an American credit rating agency (CRA) and a division of S&P Global that publishes financial research and analysis on stocks, bonds, and commodities. S&P is cons ...
, there is the S&P 500 TR index.
In the technology sector, a study has found that regardless of a company's size, the more diverse the portfolio, the more difficult it is to generate high TSR.
In practice TSR is difficult to calculate since it involves knowing the price of the shares at the time the dividends are paid. However, as an approximation over one year it can be calculated as follows with:
= share price at beginning of year,
= share price at end of year,
''Dividends'' = dividends paid over year and
''TSR'' = total shareholder return, TSR is computed as
References
Stock market
Shareholders
Yield (finance)
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