Total shareholder return (TSR)

Definition

Total shareholder return (TSR) is a financial metric that measures the total return an investor receives from an investment in a company’s stock over a specified period.

What is total shareholder return?

It provides a comprehensive view of the overall performance of an investment.

Total shareholder return is calculated using the following formula:

TSR = capital gain (or loss) + dividends

TSR provides a holistic view of how an investment in a particular stock has performed, considering both changes in stock price and income from dividends. Furthermore, TSR allows investors to compare the performance of a particular stock or investment portfolio with a chosen benchmark index or with other investments in the same industry or sector.

High TSR may indicate high returns, but it could also be associated with higher risk or volatility. On the other hand, low TSR may suggest lower returns but could be linked to lower risk.

Have in mind that TSR doesn’t consider what an investor could have earned by investing the same capital in an alternative opportunity.

Example of total shareholder return

Let’s consider an investor, John, who purchased 100 shares of Company XYZ’s stock at R50 per share one year ago. Over the past year, Company XYZ’s stock price has increased to R60 per share, and the company has paid dividends of R2 per share.

Using the provided information:

• Ending stock price = R60 per share
• Beginning stock price = R50 per share
• Dividends per share = R2

TSR = ((R60 – R50 + R2) / R50) x 100% = (R12 / R50) x 100%  = 24%

In this example, the total shareholder return (TSR) for John over the past year is 24%. This means that John has received a 24% return on his investment in Company XYZ’s stock through both capital appreciation and dividends over the one-year period.