When a company makes money, it usually has two general options. On one hand, it can reinvest this money in the company by expanding its own operations, buying new equipment, and so on (money spent this way is called "retained earnings"). Alternatively, it can use its profits to pay its investors. Money paid to investors in this way is called a "dividend". Finding the dividend that you're owed by a company is generally fairly easy — simply multiply the dividend paid per share (or "DPS") by the number of shares you own. It's also possible to determine the "dividend yield", or the percentage of your initial investment that your stock holdings will pay you in dividends, by dividing the DPS by the price per share.
Method 1 of 2: Finding Total Dividends from DPS
1Determine how many shares of stock you hold. First, if you're not already aware of how many shares of company stock you own, find out. You can usually find this information by contacting your broker or investment agency or checking the regular statements that are usually sent to a company's investors via mail or email.Ad
2Determine the dividends paid per share of company stock. Next, find your company's dividends per share (or "DPS") value. This represents the amount of money that investors are awarded for each share of stock that they own in the form of dividends. For a given time period, DPS can be calculated with the formula DPS = (D - SD)/S where D = the amount of money paid in regular dividends, SD = the amount paid in special, one-time dividends, and S = the number of shares of company stock owned by investors.
- For this equation, you can typically find D and SD on a company's cash flow statement and S on its balance sheet.
- Note that a company's dividend payout rate can change over time. Thus, if you're using past dividend values to estimate what you'll be paid in the future, there's a chance that your calculation may not be accurate.
3Multiply the DPS by the number of shares. When you know the number of stocks you own and your company's DPS for a recent time period, finding the approximate amount of dividends you will earn is easy. Simply use the formula D = DPS × S where D = your dividends and S = the number of stocks you own. Remember that since you're using a company's past DPS values, your estimate for future dividend payments may end up differing somewhat.
- For example, let's say that we own 1,000 shares of stock in a company that paid $0.75 per share in dividends last year. Plugging our values into the formula above, we get D = 0.75 × 1,000 = $750. In other words, if the company pays about the same amount of dividends this year as it did last year, we'll make about $750.
4Alternatively, consider using a calculator. If you're calculating the dividends for many different stock holdings or dealing with large numbers, the basic multiplication required to find the dividends you're owed can be tricky. In this case, using an automatic calculator can be much easier. You may want to use the free calculator provided at the top of the article, or, alternatively, use one of many online dividend calculators (like this one) which offer sophisticated options for calculating your dividends.
- Other types of calculators can be useful for accomplishing similar investment calculations. For instance, this calculator works backwards, finding DPS from the company's total dividends and your number of shares.
5Don’t forget to account for dividend reinvestment. The process above is designed to work for relatively simple cases where the number of stocks owned is a fixed quantity. However, in real life, investors often use the dividends they earn to buy more stocks in a process called "dividend reinvestment". By doing this, an investor sacrifices a short-term dividend payout in favor of the long-term gains that can result from owning more shares. If you've arranged for a dividend reinvestment scheme as part of your investment, don't forget to account for the fact that your total number of stocks owned will regularly increase.
- For instance, let’s say that we earn $100 per year in dividends from one of our stock investments and that we arrange to have this money reinvested in more stocks every year. If the stock trades at about 10$ per share and has a DPS of $1 annually, spending our $100 will get us 10 more shares and, thus, $10 of additional dividends per year, bringing our dividends to $110 in the next year. Assuming the stock’s price remains the same, we’ll be able to buy 11 more shares the following year, then about 12 the year after that, and so on...
Method 2 of 2: Finding Dividend Yield
1Determine the share price of the stock you’re analyzing. Sometimes, when investors say that they want to calculate the "dividend" on their stocks, what they're actually referring to is the "dividend yield." The dividend yield refers to the percentage of your initial investment that a given stock will pay you back in the form of dividends — in other words, a dividend yield can be thought of as being similar to a stock's "interest rate". To get started, you'll need to find the current price per share of the stocks you're analyzing.
- For publicly-traded companies (like, for instance, Apple Inc.), you can find the stock price by checking websites for major stock market indexes (e.g., NASDAQ, S&P 500, etc.)
- Keep in mind that the share price of a company's stock can fluctuate based on the company's performance. Thus, estimations for the dividend yield of a company's stock can be inaccurate if the company does better or worse than expected.
2Determine the DPS of the stock. Next, find the DPS of the stock you own for a recent time period. As a reminder, a company's DPS can be found with the formula DPS = (D - SD)/S where D = the amount of money paid in regular dividends, SD = the amount paid in special, one-time dividends, and S = the number of shares of company stock owned by investors.
- As noted above, you can typically find D and SD on a company's cash flow statement and S on its balance sheet. As an additional reminder, a company's DPS can fluctuate with time, so you'll want to use a recent time period for the most accurate results.
3Divide the DPS by the share price. Finally, divide your DPS value by the price per share for the stock you own to find your dividend yield (or, in other words, use the formula DY = DPS/SP). This simple ratio compares the amount of money you are paid in dividends to the amount of money you had to pay up-front to buy the stock. The greater the dividend yield, the more money you'll earn for your initial investment.
- For example, let's say that we own 50 shares of company stock and that we bought these shares at a price of $20 per share. If the company's DPS for recent time periods has been roughly $1, we can find the dividend yield by plugging our values into the formula DY = DPS/SP — DY = 1/20 = 0.05 or 5%. In other words, we'll make 5% of our investment back in each round of dividends no matter how much or how little we invest.
4Use dividend yields to compare investment opportunities. Investors often use dividend yields to determine whether to make certain investments or not. Different levels of dividend yield are attractive to different investors. For instance, an investor who's looking for a steady, regular source of income might invest in a company with a high dividend yield (usually, these are successful, established companies). On the other hand, an investor who's willing to take a risk for the chance of a major payout might invest in a young company with lots of growth potential (usually, these companies keep most of their profits as retained earnings and won't pay out much in the form of dividends until they are successful). Thus, knowing the dividend yields of the companies you're thinking of investing in can help you make smart, informed investment decisions.
- For instance, let’s say that two competing companies both offer dividend payments of $2 per share. While they may at first seem to be equally good investment opportunities, if one company’s stock is trading at $20 per share and the other’s is trading at $100 per share, the company with the $20 share price is the better deal (all other factors being equal). Every share of the $20 company will earn you 2/20 = 10% of your initial investment per year, while every share of the $100 company will only earn you 2/100 = 2% of your initial investment.
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- Check your investment's prospectus for more information about dividends for a specific investment.
- Not all stocks or funds pay dividends. Some are primarily growth stocks or growth funds. Investment earnings come from the appreciation when you sell. Other times, companies that aren't doing well may reinvest dividends into the company.
- Calculating dividend yields involves the assumption that dividends will remain constant. An assumption is not a guarantee.
Sources and Citations
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