It combines share price 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.
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.
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.
[1] In practice TSR is difficult to calculate since it involves knowing the price of the shares at the time the dividends are paid.
= share price at end of year, Dividends = dividends paid over year and TSR = total shareholder return, TSR is computed as