One of the best perks of investment, if not its main draw, is the moment at which one breaks even and the investment is returned on. For shareholders of companies that pay them out, this moment occurs when it's time to calculate the dividends declared by the company. Dividends are the portion of a company's earned income that it doles out on a per-share basis as a reward for those who have thrown in with it by investing or purchasing stock.
How to Calculate Dividends Declared
Dividends can be a small token of a company's appreciation or a lump sum of cash that can make quite an impact on your finances. Which way it leans depends on how much has been invested by the shareholder and how successful the company itself has been over the course of the dividend's pay period. In either case, though, the wise investor will know just what to do to figure out how big her share of the dividend pie is. But in order to arrive at that most enticing answer, a few other pieces of information need to be put together first.
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Dividends can be calculated fairly easily using some basic math; nothing more daunting or rigorous than division and multiplication is necessary to figure out how much of a dividend-paying company's earnings will end up in the pockets of its shareholders. The reason for this, at the end of the day, comes down to what a dividend actually is. Unlike the interest rate calculations common to modern banking or the myriad factors that affect the rise and fall of stock prices on Wall Street, dividends are pretty cut and dry.
The team at the Corporate Finance Institute defines the dividends declared formula quite simply as a portion of a company's retained earnings that is paid out to shareholders. This means that the most important information needed to calculate the dividends declared by a company is the value of its retained earnings for a given time period.
Consider also: What Is Included on a Balance Sheet?
Finding the Requisite Information
Before you can begin crunching the numbers to find out how much you can expect to earn with your dividend when payday comes around, you'll need to know where to look to find them. A company's income statement will contain most, if not all, of the information needed to begin doing the math, but the main thing to look out for is the company's net income, which can typically be found at the end of the income statement.
Following this, the Corporate Finance Institute says the number of outstanding shares in the company must be considered. This number can be found on a company's balance sheet. If you are an investor, you may have access to information like this on a shareholder report. If you aren't clear on the various types of financial statements you might need to examine to get the information you need, the SEC explains that the balance sheet gives details about assets, liabilities and shareholders' equity.
Finally, experts recommend looking at a company's history to determine its dividend payout ratio, or the percentage of its retained earnings that it usually pays out as dividends. After dividing the net income by the shares outstanding, multiplying that figure by the dividend payout ratio will see you arrive at the value of a dividend paid out per share by the company. That number need only be multiplied by the number of shares owned to learn just how big your share will be when it gets to your pocket.