How to calculate dividends

How to Calculate the 5-Year Average Dividend Yield

When you invest in stocks, there are a few ways to make your money: the stock price going up, selling and receiving dividends. Dividends are payments from the company to shareholders from the company’s profits based on the number of shares each investor owns. Dividends are typically paid quarterly, so if you hold a stock all year, you could receive four quarterly dividends during the year. But, not all companies pay dividends, so do your research before you start investing if receiving dividend payments is important for you.

TL;DR (Too Long; Didn’t Read)

To calculate dividends received, you can simply multiply how many shares of the stock you own on the ex-dividend date times the dividend amount. To determine the dividend yield, you’d divide the annual dividends paid by the price of the stock and then multiply that value by 100 to get a percentage yield.

Calculating Dividends Received

To figure how much you will receive in dividends, multiply the number of shares of the company that you own on the ex-dividend date by the amount of the dividend. The ex-dividend date is the date on which the stock ownership is determined for purposes of paying the dividend. For example, if the ex-dividend date is Oct. 1, if you buy the stock before Oct. 1, you receive the dividend, However, if you buy it on Oct. 1 or later, even if you buy it before the dividend is paid out, you won’t receive the dividend.

For example, if you own 150 shares of ETC Corp. on the ex-dividend date and the company is paying a $1.30 dividend, multiply 150 by $1.30 to find you’ll receive a $195 dividend. If you only owned 50 shares, your dividend would be $65.

Calculating Dividend Yield

To determine how the dividends of different companies compare, you could just look at which one pays the bigger dollar amount. However, that wouldn’t give you the entire picture because different stocks have different prices, so the dividend return is better measured as a percentage. For example, a $3 dividend sounds better than a $1 dividend, but if the $3 dividend is paid on a $100 stock and the $1 dividend is paid on a $10 stock, the $1 dividend is the higher return.

To calculate the dividend yield, divide the annual dividends paid by the price of the stock. Then, multiply the result by 100 to convert to a percentage.

For example, say your stock pays a quarterly dividend of $1.10 and has a stock price of $55. Divide the annual dividends of $4.40 by $55 to get 0.08. Then, multiply 0.08 by 100 to find the dividend yield is 8 percent. Alternatively, if the dividend was only paid once per year, you would divide $1.10 by $55 to get 0.02 and multiply by 100 to find the dividend yield is only 2 percent.

Dividend yield is a financial ratio

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How to Calculate Dividends

John W Banagan/Photographer’s Choice/Getty Images

Not all the tools of fundamental analysis work for every investor on every stock. If you’re looking for high-growth technology stocks, they’re not likely to turn up in any stock screens you might run looking for dividend-paying characteristics. However, if you’re a value investor or looking for dividend income, a couple of measurements are specific to you. One of the telling metrics for dividend investors is dividend yield, which is a financial ratio that shows how much a company pays out in dividends each year relative to its share price.  

Dividend Yield Formula

Dividend yield is shown as a percentage and calculated by dividing the dollar value of dividends paid per share in a particular year by the dollar value of one share of stock.  

Dividend yield equals the annual dividend per share divided by the stock’s price per share. For example, if a company’s annual dividend is $1.50 and the stock trades at $25, the dividend yield is 6% ($1.50 ÷ $25).

Yields for a current year can be estimated using the previous year’s dividend or by multiplying the latest quarterly dividend by 4, then dividing by the current share price.

Understanding Dividend Yield

Dividend yield is a method used to measure the amount of cash flow you’re getting back for each dollar you invest in an equity position. In other words, it’s a measurement of how much bang for your buck you’re getting from dividends. The dividend yield is essentially the return on investment for a stock without any capital gains.

Suppose company ABC’s stock is trading at $20 and pays yearly dividends of $1 per share to its shareholders. Also, suppose that company XYZ’s stock is trading at $40 and also pays annual dividends of $1 per share. Company ABC’s dividend yield is 5% (1 ÷ 20), while XYZ’s dividend yield is only 2.5% (1 ÷ 40). Assuming all other factors are equivalent, an investor looking to use their portfolio to supplement their income would likely prefer ABC’s stock over that of XYZ, as it has double the dividend yield.

Investors who need a minimum cash flow from their investments can secure it by investing in stocks paying high, stable dividend yields. Older, well-established companies usually pay out a higher percentage in dividends than younger companies, and older companies’ dividend history is also generally more consistent.  

Be Aware of Too-High Yields

Keep in mind that paying out high dividends can also cost a company growth potential. Every dollar a company pays out to its shareholders is money that the company isn’t reinvesting in itself to make capital gains.

Ask yourself why a yield might be high; then investigate a little. Sometimes a high dividend yield is the result of a stock’s price tanking.   The yield will mathematically rise because the price is dropping, a scenario often referred to as a “value trap.”   Find out why the stock’s price has dropped. If the company is suffering financial woes, you might want to steer clear of this investment, but do your homework to be sure.

Background influences such as an ailing economy can be an influence as well. Homebuilder stocks plummeted during the 2009 recession, for instance. This type of situation has no quick fix, but other issues might. The company could rebound—even sooner rather than later—so it’s important to understand what might be causing declines.

You’ll also want to be aware of the type of company you’re investing in, because some dividend yields are unnaturally high. Master limited partnerships (MLPs) and real estate investment trusts (REITs) are two examples. These types of companies are required by law to distribute a very significant percentage of their earnings to shareholders, resulting in higher dividend yields.     This doesn’t necessarily make REITs and MLPs bad deals, however. Some dividend investors love them.

Finally, some companies manipulate their growth costs, at least temporarily, to lure investors.   It’s a good idea to track dividend yields over time to gain a clearer focus on what’s going on.

It doesn’t matter whether you’re a new investor or a seasoned pro. Knowing what factors to consider when you create a new portfolio or rebalance an existing one is very important. After all, market conditions can threaten potential returns. But what metrics should you consider when making those all-important decisions?

Investors use many different ratios and metrics when weighing which companies to add to their portfolios. Among them is the dividend payout ratio (DPR), which looks at dividends paid out relative to a company’s total net income. Read on to find out more about this metric, what it means, and how it can be interpreted.

Key Takeaways

  • The dividend payout ratio is a comparison of total dollars paid out to shareholders relative to net income.
  • This ratio is an important aspect of fundamental analysis that can be calculated using data easily found on a company’s financial statements.
  • DPR is commonly calculated on a per share basis by dividing annual dividends per common share by earnings per share.

What Is a Dividend Payout Ratio?

The dividend payout ratio is a comparison of total dollars paid out to shareholders relative to the net income of a company. It is the percentage of a company’s earnings used to reward its investors. The dividend payout ratio is an important aspect of fundamental analysis that can be calculated using data easily found on a company’s financial statements. This ratio indicates what percentage of net income a company devotes to paying cash dividends to shareholders.

It is also considered to be the net income that a company does not reinvest in the business, use to pay off debt, or add to its cash reserves. As such, the payout ratio is the opposite of the retention ratio, which shows what amount of earnings the company holds onto to reinvest back into its operations.

Corporate Dividend Payouts And the Retention Ratio

How to Calculate the Dividend Payout Ratio

The dividend payout ratio can be calculated on an absolute basis by dividing the total annual dividend payout amount by net income. But it is more commonly calculated on a per share basis. Here’s the formula:

DPR = Annual Dividends per Common Share ÷ Earnings Per Share

The payout ratio can be determined using the total common shareholders’ equity figure shown on a company’s balance sheet. Divide this total by the company’s current share price to get the number of outstanding shares. Then calculate dividends per share by dividing the dividend payout amount shown on the balance sheet by the number of outstanding shares.

The earnings per share (EPS) figure can be found at the bottom of the company’s income statement.

Interpreting the Dividend Payout Ratio

The dividend payout ratio is a key profitability ratio that measures return on investment. By revealing what percentage of net income a company pays out or retains, it can also serve as a metric to gauge a company’s future prospects.

The dividend payout ratio can serve as a metric to gauge a company’s future prospects.

A high dividend payout ratio is not always valued by active investors. An unusually high dividend payout ratio can indicate that a company is trying to mask a bad business situation from investors by offering extravagant dividends, or that it simply does not plan to aggressively use working capital to expand.

Analysts prefer to see a healthy balance between dividend payouts and retained earnings. They also like to see consistent dividend payout ratios from year to year that indicate a company is not going through boom-and-bust cycles. Stock traders, as opposed to buy-and-hold investors, tend to dismiss stock dividends, as they don’t intend to hold their investments long enough to get them.

In recent years, companies riding the crest of a business boom have paid little or no dividends to their investors. During the technology boom of the late 1990s, it was even seen as a signal that a company was maturing into comfortable, but not spectacular growth.

Considerations for DPRs

One of the factors to consider when it comes to the DPR is a company’s maturity. New companies may pay out a low DPR or even none at all. This may mean that a company is still fairly new and is concentrating on growth: research and development (R&D), new product lines, or expansion into new markets. A company that’s more established may disappoint investors if it doesn’t pay out any dividends at all, especially if it’s gone well past its expansion and growth stages.

DPRs and Dividend Sustainability

Dividend payout ratios can also help determine how whether a company is able to sustain its dividend. The general range for a healthy DPR falls between 35% to 55%. This means the company is returning about half of its earnings to shareholders, and is reinvesting the remaining half in order to grow. This kind of payout ratio indicate a more sustainable dividend.

A company whose DPR is over 100% tends to be unsustainable. It means that it’s returning more money to its shareholders than it earns. The company may have to lower the dividend or, even worse, stop paying it out. But this scenario is not very likely since many companies feel cutting their dividends can cause share prices to drop. It may also lead investors to lose faith in the management teams of dividend-paying companies.

The Bottom Line

The dividend payout ratio continues to be a key factor in selecting stocks, particularly for the long term. Professional portfolio managers generally recommend that an investor devote some portion of a portfolio to such income-generating stocks. The recommended portion devoted to such stocks generally increases as the investor approaches retirement.

Here’s how to use the income statement and balance sheet to find out how much a company paid out in dividends.

Finding how much a company pays in total dividends is pretty easy if you know where to look. One way to calculate total dividends paid in any given period is to look at net income, and the change in retained earnings.

Net income = profits or losses earned a period of time.

Retained earnings = Cumulative net income minus cumulative dividends paid to shareholders.

Therefore, logic follows that the amount paid out in dividends is equal to net income minus the change in retained earnings for any period of time. Confused? Don’t be. I’ll use a really friendly example so that you can calculate this on your own.

Calculating Costco’s dividends in 2014
In 2014, Costco reported net income of $2.058 billion on its income statement. On its balance sheet, it reported having retained earnings of $6.283 billion at the end of 2013, and $7.458 billion at the end of 2014. These are the three numbers we need to calculate how much it paid in dividends in 2014.

The first step is to figure out how much of Costco’s earnings it retained in 2014. We can find this by taking retained earnings at the end of 2014, and subtracting retained earnings at the end of 2013.

Calculating the change in Costco’s retained earnings

Retained earnings in 2014

Subtract retained earnings in 2013

Change in retained earnings

This figure ($1.175 billion) shows us how much of Costco’s net income was retained by the company during the fiscal 2014 year. By definition, this is how much of its earnings Costco didn’t pay out in a dividend.

To find out how much was paid out in dividends, we simply have to find the difference between what Costco earned, and what it retained. A dollar earned, but not retained, is obviously a dollar paid out.

Thus, we take net income of $2.058 billion and subtract the change in retained earnings over the past year, or $1.175 billion. In doing so, we arrive at $0.883 billion. This figure is how much Costco paid out in dividends to its shareholders using net income and retained earnings.

Calculating how much Costco paid out in dividends in 2014

Net income in 2014

Subtract the change in retained earnings from 2013 to 2014

Dividends paid out in 2014

And with that, we’re done! We’ve found that Costco paid $0.883 billion in dividends in 2014 using retained earnings and net income.

You an also find dividend information at your broker. Visit our broker center to see how your current broker compares to others

Using simple accounting statements, you can figure out how much a company has paid in dividends.

Many investors focus on how much a company pays in dividends. Most companies report their dividends on a cash flow statement or in a separate accounting summary in their regular disclosures to investors. However, you can actually calculate dividends having nothing more than a balance sheet and an income statement.

Net income and retained earnings
To figure out dividends when they’re not explicitly stated, you have to look at two things. First, the balance sheet will reveal how much a company has kept on its books in retained earnings. Retained earnings represent the aggregate total of earnings over the history of the company that it hasn’t returned to shareholders through dividends.

Second, the income statement will show you how much in net earnings a company has brought in during a given year. That figure helps to establish what the change in retained earnings would have been if the company had chosen not to pay any dividends during a given year.

Making the calculation
To calculate dividends for a given year, first take the retained earnings figures at the beginning and end of the year and subtract the beginning-of-year number from the end-of-year number. That will tell you the net change in retained earnings for the year.

Next, take that net change figure and subtract it from the net earnings for the year. If retained earnings has gone up, then the result will be less than the year’s net earnings. If retained earnings have fallen over the course of the year, then the result will be greater than the net earnings for the year. Regardless, the answer represents the amount of dividends paid.

For example, say a company earned $100 million in a given year. It started with $50 million in retained earnings and ended the year with $70 million. The increase in retained earnings was $70 million minus $50 million or $20 million. Subtract $20 million from $100 million, and the difference of $80 million is how much the company paid in dividends.

Finally, if you want to know how much that represents in dividends per share, just take the outstanding share information from the balance sheet. In the above example, if the company has 40 million shares outstanding, then the dividend was $2 per share over the course of the year.

Again, most of the time, you won’t have to calculate dividends by hand. You could also seek help from a good broker. If you do, though, this is a good method to use.

Accounting CPE Courses & Books

An investor might want to know how much a company has paid out in dividends in the past year. If the company has not directly disclosed this information, it is still possible to derive the amount if the investor has access to the company’s income statement and its beginning and ending balance sheets. If these reports are available, the calculation of dividends paid is as follows:

Subtract the retained earnings figure in the ending balance sheet from the retained earnings figure in the beginning balance sheet. This calculation reveals the net change in retained earnings derived from activity within the reporting period.

Go to the bottom of the income statement and extract the net profit figure.

If the net profit figure on the income statement matches the net change in retained earnings from the first calculation, then no dividend was issued during the period. If the net change in retained earnings is less than the net profit figure, the difference is the amount of dividends paid out during the period.

For example, a business reports beginning retained earnings of $500,000 and ending retained earnings of $600,000, so the net change in retained earnings in the period was $100,000. During the year, the company also reported $180,000 of net profits. In the absence of any dividend payments, the entire $180,000 should have been transferred to retained earnings. However, there was only a residual increase of $100,000 in retained earnings, so the $80,000 difference must have been paid out to investors as a dividend.

The concept can be further refined by dividing the derived amount of dividends paid by the number of outstanding shares (which is listed on the balance sheet). The result is dividends paid per share.

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Corporations pay dividends as a way to share the company’s profits with the shareholders. Companies are under no obligation or regulation to calculate their dividend payout a certain way. Investors should understand the dividend policy and philosophy of the stocks they own.


The decision to pay a dividend is at the discretion of a company’s board of directors. Companies can elect to pay dividends quarterly, twice a year, annually or not at all. The amount of a dividend payout is usually related to a company’s net income or free cash flow. Some boards adopt a regular dividend policy and other will pay a distribution only when they believe it is in the interest of the company and shareholders.

Payout Ratio

For companies with a regular dividend policy, investors can look at the dividend payout ratio. A sustainable dividend policy requires that the company have enough net income to support the payout. The ratio is calculated by dividing the dividend rate by the net income per share. For example, if Company A pays a $1dividend each quarter and has a net earnings per share for the quarter of $2, the dividend payout ratio is 50 percent.


Some types of stocks will have a higher payout ratio, sometimes even exceeding the net income per share. Real estate investment trusts (REITs), master limited partnership (MLPs) and capital intensive companies, including leasing and shipping companies, may have high-dividend payouts in relation to their net income. REIT and MLP stocks are required by tax law to pay a majority of their cash flow as dividends. Other high-dividend companies also have high depreciation amounts on their equipment, making free cash flow a more important measurement than net income when evaluating dividend payouts.


A stock’s dividend yield is calculated by dividing the annual dividend payout into the stock share price. If a stock pay a 25 cent dividend quarterly and the stock is at $50, the dividend yield is $1 divided by 50 or 2 percent. The dividend yield number is only valid for companies with a regular, stable dividend payout.


Many companies will increase their dividend as the company grows and net income increases. These types of companies can provide significant long term investment growth. The Standard & Poors list of Dividend Aristocrats is a listing of companies that have increased their dividend payouts for at least 25 consecutive years. These are companies with a dividend policy dedicated to rewarding investors.

Dividends can be taxed at different rates

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How to Calculate Dividends

Qualified dividends are a type of investment income that’s generated from stocks and mutual funds that contain stocks. They represent a share of corporate profits paid out to investors, and they’re considered taxable income by the Internal Revenue Service. This presents some special considerations at tax time regarding filing requirements and various applicable taxes.  

What Is a Qualified Dividend?

Dividends can be taxed at either ordinary income tax rates or at preferred long-term capital gains tax rates. Dividends that qualify for long-term capital gains tax rates are referred to as “qualified dividends.”  

An investor must hold or own the stock for more than 60 days during a 121-day period that begins 60 days before the ex-dividend date for the dividends to be considered qualified.

Ordinary dividends are more common, and they should be clearly designated as such.  

The holding period can be longer for preferred stock. These assets must be held for more than 91 days days during a 181-day period that begins 90 days before the ex-dividend date. This rule applies if the dividends result from time periods of 367 days or more.  

Tax Treatment of Qualified Dividends

The tax treatment of qualified dividends has changed somewhat since 2017 when they were taxed at rates of 0%, 15%, or 20%, depending on the taxpayer’s ordinary income tax bracket. Then the Tax Cuts and Jobs Act came along and changed things up effective January 2018.

The rates are still set at 0%, 15%, and 20%, but now long-term gains have their own tax brackets. They’re no longer tied to ordinary income brackets.

As of the 2020 tax year, you’ll fall into the 0% long-term capital gains tax rate for qualified dividends if:

  • Your income is less than $40,000 if you’re single
  • Your income is less than $80,000 if you’re married and you file a joint return with your spouse
  • Your income is less than $53,600 if you qualify as head of household

The 15% tax bracket kicks in at incomes above the 0% thresholds up to:

  • $441,449 for single filers
  • $469,049 for head of household filers
  • $496,599 for married filers of joint returns in 2020

Only taxpayers with incomes in excess of the 15% thresholds are faced with the 20% capital gains tax rate as of 2020.  

Ordinary dividends are taxed as ordinary income according to a taxpayer’s tax bracket.  

Other Types of Dividends

Ordinary dividends are taxed exactly the same way and at the same rates as your salary, wages, or other earned income.

You might also receive dividends from a trust or an estate, from an S-corporation, or from a partnership. Regardless of whether the corporation or partnership pays you in cash, stock options, or tangible property, the transaction still represents dividends and the value must be reported on your tax return.

You should receive Schedule K-1 for dividends from these sources. All other dividends are reported to investors on Form 1099-DIV.    

Reporting Dividend Income: Form 1099-DIV

Form 1099-DIV is issued to investors by mutual fund companies, brokers, and corporations when $10 or more in dividend income is paid out during the year.   Form 1099-DIV reports dividends information in the following places:

  • Box 1a: Ordinary dividends reflecting the total amount of dividends paid to you
  • Box 1b: Qualified dividends—the portion of total dividends that qualify for the preferred capital gains tax rate
  • Box 3: Non-dividend distributions, which are a nontaxable return of capital

Some investors opt to have taxes withheld from their dividends. These amounts will appear in box 4.  

Reporting on Form 1040

Report dividend income on your 2019 tax return in the following places:

  • Ordinary dividends are reported on Line 3b of your Form 1040.
  • Qualified dividends are reported on Line 3a of your Form 1040.

Be sure to use the Qualified Dividends and Capital Gain Tax Worksheet found in the instructions for Form 1040 to calculate the tax on qualified dividends at the preferred tax rates.  

Non-dividend distributions can reduce your cost basis in the stock by the amount of the distribution.  

The IRS has issued new Form 1040s for tax years 2018 and 2019. They replace the old 1040, Form 1040-EZ, and Form 1040-A. These lines and entries refer to the 2019 tax form that you’ll file in 2020. Forms 1040-EZ and 1040-A are no longer available.  

You must still report dividend income on your tax return even if you don’t receive a Form 1099-DIV for some reason.

Dividends are taxable regardless and must still be reported if you reinvest them, purchasing additional stock.  

Using Schedule B

Schedule B is a supplemental tax form used to list interest and dividend income from multiple sources. Using Schedule B is required if you have over $1,500 in interest income and/or dividends.  

Part 1 details taxable interest earned, and Part 2 pertains to ordinary dividends.

It can be helpful to use the form to tally up your interest and dividends for reporting on Form 1040 even if you’re not required to file it with your tax return.

Other Taxes—The Additional Medicare Surcharge

Dividend income can also prompt the Additional Medicare Tax, which has been in place since the 2013 tax year. This tax is in addition to any income tax you might pay on your dividends.

You must pay an additional 0.9% of your net investment income toward this Medicare tax if you’re married filing jointly and your modified adjusted gross income (MAGI) is $250,000 or more, or if you’re married filing separately and your MAGI is more than $125,000. The income threshold for all other taxpayers is $200,000.  

The Net Investment Income Tax

The Net Investment Income Tax is a heartier 3.8%. It kicks in at the income thresholds of your net investment income or at the same limits as for the Additional Medicare Tax, whichever is less.  

All taxable dividends are considered investment income, even if they’re taxed at ordinary rates.

Tax laws change periodically. You should always consult with a tax professional for the most up-to-date advice. The information contained in this article is not intended as tax advice and it is not a substitute for tax advice.

How to Reformulate a Statement of Shareholders’ Equity

Dividends are the primary way corporations reward investors who buy and hold their stock. If you’re looking at investing in a company, regular dividends help you recoup the cost of investment. Studying the financial statements can give you an idea of the dividends to expect.

TL;DR (Too Long; Didn’t Read)

You find dividends issued during an accounting period on the cash flow statement. Dividends that haven’t been paid out are listed as a liability on the balance sheet. By subtracting beginning retained earnings from the ending retained earnings and comparing the result to net profit, you can calculate dividends for the period.

Dividends and Cash Flow

The cash flow statement is one of the big three financial statements, along with the income statement and the balance sheet. Unlike the income statement, the cash flow statement only deals with actual cash transactions, such as bills paid off and money that customers paid you.

One section of the statement covers cash flow from financing activities by selling stock, issuing bonds or repurchasing outstanding stock, for example. Different financing activities cause cash to flow in or out of the company. With dividends, the cash flows out from the company’s coffers to the stockholders.

Suppose you’re looking at the statement of cash flow for the last year, for example. You look for cash flow from financing activities and discover the company issued $400,000 in bonds and $150,000 in new stock, and it paid out dividends of $75,000 to stockholders. If dividends have been declared but not issued, that’s different: you won’t find dividends payable in the cash flow statement.

Dividends on the Balance Sheet

You can find dividends payable on the balance sheet, which lists the corporate assets and liabilities and the owners’ equity in the company. If any dividends aren’t paid out by the end of the accounting period, they’re listed among the liabilities.

It’s also possible to see the effect of paid-out dividends on the balance sheet. Part of owners’ equity is retained earnings, the profits that the company kept rather than used to finance dividends. For a more detailed look at retained earnings, go to the statement of shareholders’ equity, also known as the statement of equity.

Shareholders’ Equity and Dividends

Shareholders’ equity is what remains of the company’s worth after you subtract total liabilities from total assets. The statement of shareholders’ equity takes the retained earnings section of the balance sheet and goes into detail to track additions to and subtractions from earnings, including:

  • Sales of stock, both common and preferred

Treasury stock purchased or reissued during the accounting period

Unrealized gains and losses

The statement adds profits and subtracts losses from retained earnings. Suppose the company started the year with $1.5 million in retained earnings, for example, and ended the year with another $250,000 in earnings. That bumps retained earnings up to $1.75 million.

  • The statement subtracts dividends. A $200,000 dividend cuts retained earnings back to $1.55 million.
  • The statement combines all these pluses and minuses to wrap up — at the end of the number crunching — with the total shareholders’ equity for the period.

    Calculating Dividends

    If you want dividend information on a company but you don’t have the cash flow statement, you can extract the same information from the income statement and the balance sheet for the current and previous reporting periods.

    • Subtract the retained earnings at the beginning of the year from the retained earnings at the end to show the net change over the year.

    Take the net profit figure from the income statement.

  • Compare net profits for the period to retained earnings. If they’re the same, no dividends were issued; if they’re different, the difference is the dividend amount.
  • For example, suppose retained earnings at the start of the year were $1.5 million. At year’s end, they’re $1.75 million, a $250,000 difference. Net profits were $300,000, so that shows the company issued a $50,000 dividend.

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    Salary aside, most limited company directors (and shareholders) typically draw down most of their income in the form of dividends. Dividends are distributed by companies of all types in order to return a proportion of company profits back to their shareholders. Here we look at what are company dividends and how to calculate them.

    How to Calculate Dividends

    The limited company structure is an attractive way for most business owners to work, as limited company directors are taxed differently from their permanent (salaried) counterparts. Most limited company directors take a small salary and draw down the remainder of their company’s profits in the form of dividends.

    Dividends are taxed at three different flat rates, depending on the income tax band your earnings fall within. Crucially, however, National Insurance Contributions are not payable on dividend income, saving company directors thousands each year compared to traditional employees and sole traders.

    How are dividends declared?

    Limited company directors can distribute dividends to any value, as long as they are derived from company profits (after all expenses and tax liabilities have been accounted for). Failure to ensure that funds are available to distribute could result in such dividends being illegal, and potentially open to examination by HMRC.

    There are no firm rules over how often dividends should be declared, although you may wish to discuss your tax planning options with your accountant first. It may be more prudent, for example, to put off drawing down all available company funds during a bumper tax year, when they could fall within a lower tax band in a subsequent tax year.

    As Corporation Tax has already been paid on company income, a 10% ‘tax credit’ is applied when dividends are distributed. Shareholders are then taxed on this ‘gross dividend’.

    What paperwork must you complete?

    You must ensure that you complete all the related paperwork when declaring dividends. Company board minutes must be prepared each time you make a declaration.

    A dividend voucher must also be prepared for each company shareholder, which states the net dividend paid, together with the tax credit.

    How are dividends taxed?

    There are three rates of dividend tax payable, depending on the tax bands you fall in to.

    • The first £2,000 of dividends is tax-free.
    • 7.5% rate on dividends for basic rate taxpayers (up to £37,500 on top of the personal allowance for the 2020/21 tax year).
    • 32.5% on dividend income between the higher rate threshold (£37,501) and the additional rate threshold (£150,000).
    • 38.1% on dividend income above the additional rate threshold of £150,000.

    In order to calculate your dividend tax liability, you first need to turn your ‘net’ dividend into a ‘gross’ dividend for tax purposes.

    How much tax do you actually pay?

    • For any dividend income falling below the £37,500 higher rate threshold, there is a zero dividend tax to pay (7.5% tax rate).
    • A higher rate dividend income is (between £37,501 and £150,000), you pay 25% (the effective rate).
    • For additional rate income, your effective rate is 30.55%

    For income tax bands for previous tax years, visit our Tax Rates section.

    To find out how much tax you’ll pay on your income, visit our new dividend tax calculator.

    You pay tax on any dividends received via your Self Assessment Tax Return (SATR) in the tax year following the dividend declaration.

    Calculate your dividends using our dividends tax calculator:

    Use this dividend tax calculator below, provided by specialist contractor accountants, Intouch, to work out any additional dividend tax you will have to pay during the 2017/18, 2018/19 and 2019/20 tax years.

    Further information

    You should ask your accountant if you have any questions about the timing of taxation of your company dividends.

    You must ensure that you only declare dividends when profits are available to distribute, otherwise, HMRC may class them as illegal, and apply additional tax and penalties.

    This article will explain to you what dividends are and how to calculate dividends per share.

    How to Calculate Dividends

    This article will explain to you what dividends are and how to calculate dividends per share.

    If you are someone who is contemplating to invest in shares of a company, you should be aware of how investing in shares can be profitable for you. Income from shares comes in two forms. Firstly, over time, the value of the shares gets appreciated. Say, for instance, you buy 100 shares of a company today at USD 10 each. After a few months or sometimes even days, the value of the share increases to USD 15 per share in the stock market. If at that point, you sell your shares, you will be making profits of USD 5 per share, which is your income from making investments in share. The second earnings from share come in the form of dividends, which companies pay to their shareholders on a quarterly or yearly basis. In this article, you will learn how to calculate dividends per share.


    Dividends can be defined as a small part of the earnings and profits that the company makes in a given period of time that is returned to the shareholders, depending upon the number of shares of the company that they hold. It is a kind of profit-sharing mechanism followed by companies to reward their shareholders for being an investor in the company.

    Would you like to write for us? Well, we’re looking for good writers who want to spread the word. Get in touch with us and we’ll talk.

    Most of the companies pay regular dividends to their shareholders, unless they are facing some financial problems. By paying them on a regular basis, companies project themselves as investor-friendly and thus, improve upon their reputation in the stock market. A company which pays a high dividend regularly, projects itself as a company with sustainable growth. They are paid in cash, however in some cases, they may be paid as stocks too. They can be fixed, also known as preferred dividends, or they may be variable, known as common dividends, which change in accordance to the profits made by the company.

    Formula to Calculate

    i.e. Dividend per share = (Sum of dividends paid over a given period including the interim dividends – any special, one time dividend) / Number of ordinary shares outstanding issued for the period)

    Let’s take an example. Suppose, there is a company XYZ, which paid dividends totaling USD 350000 in a year. The outstanding shares of XYZ are three million. In between it paid a special, one time dividend of USD 80000. So, its DPS would be:

    DPS = (USD 350000 – USD 80000) / 3000000 = 0.09

    Thus, in the above calculation, 0.09 is the DPS issued by the company XYZ to its shareholders.

    Important Dates for Payment

    All first time investors in shares should be aware of two very important dates related to the payment of dividends. The first is the declaration date on which it is decided by the company how much will be paid to the shareholders and when it will be paid. The second is the ex-dividend date, which is around two to three days prior to the record date. This is the date on which the company makes a list of all the shareholders. So, whatever pending transactions are there, they should be completed by the shareholders before this date to ensure that they are eligible for the payment.

    If you are someone new to stock investing, make sure that you study the markets really well and undertake thorough stock research, before you finalize on companies that you want to invest in. A good idea is to always keep a mixed, diversified portfolio, i.e., buy shares of companies in different sectors so that even if one sector sees a downfall, your losses can be offset by the profits from shares in other sectors. All the best!

    Would you like to write for us? Well, we’re looking for good writers who want to spread the word. Get in touch with us and we’ll talk.

    What is Dividend Formula?

    When an organization or a firm earns a profit at the end of the accounting year, they may take a resolution in the board meeting or through shareholder’s approval in certain cases to share a portion of their earned profits with their stockholders, which are called as the dividend. By using the below formula, we can find out the percentage of dividend that is paid to the stockholders out of the net profit earned for that accounting year.

    How to Calculate Dividends

    Explanation of Dividend Formula

    For an organization or the firm, sharing of the profit that is earned is an after-thought. First, the management will decide how much they can reinvest into the firm so that the business of the firm can grow huge, and the business can multiply the stockholders’ hard-earned money instead of just sharing with them. That’s the reason dividend is crucial.

    Furthermore, it tells one about how much is the firm or the organization is rewarding or, in order words, paying the dividend to its stockholders. And further again, how much the firm or the organization is reinvesting into itself, which can be called the retained earnings.

    Sometimes, the firm or the organization doesn’t desire to pay anything to their stockholders as the management would feel the need to reinvest the profits earned by the company as that can aid the firm to grow bigger and faster.

    Calculation Examples

    Let’s see some simple to advanced examples to understand it better.

    Example #1

    Patel limited last paid dividend for 150,000 when it made a net profit for 450,000. This year also, the company is looking to pay a dividend as they have done spectacular business, and shareholders are pleased about it. The company has decided to increase its dividend by 2% than last year. Compute the dividend payout ratio for this year.


    We are given last year’s dividend and net profit as 150,000 and 450,000, respectively. We can use the below formula to calculate dividends and come out with dividend payout.

    If your investment is inside RRSP, TFSA or RRIF, it will not matter to you. How to calculate dividends? Because in these tax havens, refunds are not taxed as long as the investment remains in the registered plan. In addition, when they are excluded from the registered plan, all declarations will be taxed in the same way as interest income.

    In addition, if your investment is not tax-protected and therefore not registered, the income from these investments will be taxed every year.

    How are dividends taxed? Interest. If your unregistered investments generate interest income, that income will be taxed based on your marginal rate. The latter is the percentage of taxes — federal and provincial combined — that you pay for the last dollars earned in the fiscal year. It should be noted that all guaranteed investments – guaranteed investment certificates or term deposits, savings bonds and treasury bills – bring only interest.

    Capital gains or how do dividends work. On the other hand, if your unregistered investments provide you with a capital gain, only 50% of them will be taxed, which means that the capital gain will cost you 50% of your marginal tax rate. Capital gains are defined as the difference between the price paid for a security, such as stocks traded on an exchange, and the price received at the time of resale, net of fees due.

    Shares of private or state-owned companies, market bonds, real estate and mutual funds holding any of these assets bring capital gains … or sometimes capital losses! Dividends There are dividends between them. This will cost you taxes from 66% to 75% of your marginal rate, depending on your income. In fact, dividends benefit from preferential taxation because they are paid by companies with already taxable money. This approach aims to avoid double taxation. Preferred shares and common shares of the largest Canadian companies, as well as mutual investment funds that own one or the other of these classes of shares, pay for this type of income.

    How to Calculate Dividends

    What to remember from all this? If you have registered investments and others that are not registered, it is preferable that those who generate interest be in RRSP, TFSA or RRIF, where they will cost the lowest cost in the form of taxes. Investments that provide capital gains and dividends should ideally be in an unregistered portfolio. It should be remembered about the purpose and horizon of any investment before making such a decision. Tax exposure should be considered only as a last resort. Are you interested in this topic? As a financial security adviser, I can explain all the details. Contact me immediately to arrange a meeting where I will provide you with all the necessary information on taxing investment income.

    Let’s answer the question, how is passive income taxed. Using the full income tax data, we evaluate the effect of the capital income scale on the reported profit using the difference method. As a treatment group, we used households that chose fixed-rate reform before the reform, and households that remained on the scale. We review a high-income sample by regularly collecting significant amounts of dividends before the reform in order to get groups of comparable taxpayers.

    We had a very negative impact on the dividend reform of 2013, when declared dividends were reduced by 40%. On the other hand, we see no effect on other capital income (capital gains, other income from securities). Similarly, we do not see a significant effect on reported wages.

    Our controlling group also believes that dividends have been received, reflecting the possible indirect consequences of the reform. The tax office of the control group may own shares in companies whose shareholders are mainly affected by the reform. This aspect tends to underestimate the impact of taxation on dividend flows.

    The details of the two proposed measures are discussed in the article. The proposed measures do not directly affect the tax on passive investment income received in the corporation. In essence, tax rates applicable to investment income, return taxes and dividends remain unchanged.

    A company’s dividend payout ratio gives investors an idea of how much money it returns to its shareholders compared to how much it keeps on hand to reinvest in growth, pay off debt, or add to cash reserves. This ratio is easily calculated using the figures found at the bottom of a company’s income statement. It differs from the dividend yield, which compares the dividend payment to the company’s current stock price.

    Calculating the Dividend Payout Ratio

    The dividend payout ratio is commonly calculated on a total basis using the following formula:

    Another way to calculate the dividend payout ratio is on a per share basis. In this case, the formula used is dividends per share divided by earnings per share (EPS). EPS represents net income minus preferred stock dividends divided by the average number of outstanding shares over a given time period. One other variation preferred by some analysts uses the diluted net income per share that additionally factors in options on the company’s stock.

    Where to Find Dividend Payout Ratio Numbers

    The figures for net income, EPS, and diluted EPS are all found at the bottom of a company’s income statement. For the amount of dividends paid, look at the company’s dividend announcement or its balance sheet, which shows outstanding shares and retained earnings.

    In order to calculate the number of dividends paid from the balance sheet, use the following formula:

    Corporate Dividend Payouts And the Retention Ratio

    Dividend Payout Ratio vs. Retention Ratio

    The dividend payout ratio is the opposite of the retention ratio which shows the percentage of net income retained by a company after dividend payments. The payout ratio indicates the percentage of total net income paid out in the form of dividends.

    Calculating the retention ratio is simple, by subtracting the dividend payout ratio from the number one.

    The two ratios are essentially two sides of the same coin, providing different perspectives for analysis. A growth investor interested in a company’s expansion prospects is more likely to look at the retention ratio, while an income investor more focused on analyzing dividends tends to use the dividend payout ratio.

    For example, a company pays out $100 million in dividends per year and made $300 million in net income the same year. In this case, the dividend payout ratio is 33% ($100 million ÷ $300 million). Thus, the company pays out 33% of its earnings via dividends. Meanwhile, its retention ratio is 66%, or 1 minus the dividend payout ratio (1 – 33%). Thus, the company retains 66% of its net income for reinvesting.

    Dividend Payout Ratio vs. Dividend Yield

    While many investors are focused on the dividend yield, a high yield might not necessarily be a good thing. If a company is paying out the majority, or over 100%, of its earnings via dividends, then that dividend yield might not be sustainable.

    For example, a company offers an 8% dividend yield, paying out $4 per share in dividends, but it generates just $3 per share in earnings. That means the company pays out 133% of its earnings via dividends, which is unsustainable over the long-term and may lead to a dividend cut.

    How to Calculate Dividends

    How far would you go to protect your retirement savings?

    As the old Wall Street adage goes, “It’s not what you make, it’s what you keep” – and what you keep could be the main factor in deciding your quality of life in your golden years.

    But while the saying is often used to describe taxes, there are more threats to your retirement…

    How to Calculate Dividends

    Recently, rock-bottom interest rates have left fans of Treasurys crestfallen. And inflation threatens to take a bigger bite out of our savings each year…

    And due to the economic slowdowns that came from COVID-19, many companies have suspended or cut their dividends.

    Take The Walt Disney Company (NYSE: DIS), for example… the market is no longer the happiest place on earth.

    But even in a world where it feels like we control so little…

    And are powerless against things like a tanking market, the coronavirus outbreak, the Fed, taxes and volatility…

    You still have the power to protect – and even grow – your wealth.

    And in this week’s State of the Market video, Chief Income Strategist Marc Lichtenfeld will show you how.

    In last week’s segment, Marc explained why cash flow is a critical metric for determining a company’s dividend safety.

    And yesterday on his popular YouTube channel, he rolled up his sleeves and showed viewers how to do it for themselves.

    This secret – the formula for calculating the safety of your income investments – is critical to Marc’s dividend investing philosophy.

    The signature 10-11-12 System he coined in his bestseller Get Rich with Dividends promises an 11% yield within 10 years or 12% average annual returns in 10 years with dividends reinvested. This means that he has a zero-tolerance policy for a company that betrays its shareholders’ trust.

    So Marc learned from the start to “expect the unexpected” and not take companies at their word. That’s why he shares insight into many businesses’ true health each week in his Safety Net column with the help of his powerful rating system, SafetyNet Pro.

    Marc wants you to experience the peace of mind of a secure retirement…

    And plan for the future confident that your income investments will deliver.

    Check out this week’s State of the Market and learn how to calculate dividend safety for yourself using metrics like funds from operations and distributable cash flow.

    Then, take a swing at it for yourself and cast a light on any dangers lurking in your portfolio using SafetyNet Pro.

    The beauty of Marc’s time-tested strategy is that it doesn’t require you to take over the Fed, single-handedly move the market or commit tax fraud.

    All it takes is 10 minutes, some simple math and the will to build a wealthy retirement.

    Leave any questions you have in the video’s comments, and Marc may address them in an upcoming segment.

    By Nick Zarzycki — Reviewed by Janet Berry-Johnson, CPA on February 28, 2020

    Retained earnings are like a running tally of how much profit your company has managed to hold onto since it was founded. They go up whenever your company earns a profit, and down every time you withdraw some of those profits in the form of dividend payouts.

    Here we’ll go over how to make sure you’re calculating retained earnings properly, and show you some examples of retained earnings in action.

    How to calculate retained earnings

    The retained earnings formula is fairly straightforward:

    Current Retained Earnings + Profit/Loss – Dividends = Retained Earnings

    Your accounting software will handle this calculation for you when it generates your company’s balance sheet, statement of retained earnings and other financial statements.

    If you happen to be calculating retained earnings manually, however, you’ll need to figure out the following three variables before plugging them into the equation above:

    Your current or beginning retained earnings, which is just whatever your retained earnings balance ended up being the last time you calculated it. (If you create a balance sheet monthly, for example, you’ll use last month’s retained earnings.)

    Your net profit/net loss, which will probably come from the income statement for this accounting period. If you generate those monthly, for example, use this month’s net income or loss. (Here’s how to calculate net income).

    Any dividends you distributed this specific period, which are company profits you and the other shareholders decide to take out of the company. When you issue a cash dividend, each shareholder gets a cash payment. The more shares a shareholder owns, the larger their share of the dividend is.

    Example of a retained earnings calculation

    Let’s say your company went into business on January 1, 2020. Your retained earnings account on January 1, 2020 will read $0, because you have no earnings to retain.

    Now let’s say that in January you earn $1,000 in net income (from your income statement) and don’t issue any dividends.

    That means that on February 1, your company’s retained earnings will be $1,000:

    Current retained earnings + Net income – Dividends = Retained earnings

    $0 + $1,000 – $0 = $1,000

    This makes sense: you earned $1,000 in profits, and retained all of them.

    How to calculate the effect of a cash dividend on retained earnings

    Now let’s say that the business does really well in February, and you make an enormous profit that month: $10,000. You’re doing so well that at the end of February, you decide to pay out $2,000 of those profits in the form of cash dividends to your shareholders (you, your mom and your aunt Karen). And remember, the beginning balance for retained earnings will be $1,000.

    That means that on March 1, your retained earnings will be $9,000:

    Current retained earnings + Net income – Dividends = Retained earnings

    $1,000 + $10,000 – $2,000 = $9,000

    How to calculate the effect of a stock dividend on retained earnings

    Sometimes when a company wants to reward its shareholders with a dividend without giving away any cash, it issues what’s called a stock dividend. This is just a dividend payment made in shares of a company, rather than cash.

    Calculating retained earnings after a stock dividend involves a few extra steps to figure out the actual amount of dividends you’ll be distributing.

    First, you have to figure out the fair market value (FMV) of the shares you’re distributing. Companies will also usually issue a percentage of all their stock as a dividend (i.e. a 5% stock dividend means you’re giving away 5% of the company’s equity). So you have to figure out exactly how many shares that is.

    Put in equation form, the formula for retained earnings in a stock dividend is:

    Current retained earnings + Net income – (# of shares x FMV of each share) = Retained earnings

    Example of a stock dividend calculation

    Let’s say that in March, business continues roaring along, and you make another $10,000 in profit. Since you’re thinking of keeping that money for reinvestment in the business, you forego a cash dividend and decide to issue a 5% stock dividend instead.

    Let’s say your company has a total of 10,000 outstanding shares of common stock, and you determine that the fair market value of each share is $10. That means you would issue 500 shares in the dividend, each of them reducing retained earnings by $10:

    Current retained earnings + Net income – (# of shares x FMV of each share) = Retained earnings

    $9,000 + $10,000 – (500 x $10) = $14,000

    This means that on April 1, retained earnings for the business would be $14,000.

    What about working capital and stockholder’s equity?

    Although they all have to do with the equity section of the balance sheet, working capital and shareholder’s equity (also called stockholder equity, paid-in capital or owner’s equity) are different from retained earnings.

    Shareholder’s equity measures how much your company is worth if you decide to liquidate all your assets. The formula for calculating it is:

    Shareholders’ Equity = Total Assets − Total Liabilities

    Working capital is a measure of the resources your small business has at its disposal to fund day-to-day operations. To get it, you subtract all of your current liabilities from your current assets:

    Working Capital = Current Assets в€’ Current Liabilities

    This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

    How to Calculate Dividends

    If you invest in stocks, there is a decent chance that you will receive some sort of dividend, which is a payment to shareholders that is awarded in correlation with how the stock is performing on the market. To see if you’re getting a good dividend in comparison with other stocks, you’ll need to learn how to calculate dividend yield.

    Dividend yield is an expression comparing the price of a company’s stock to the dividend it pays. It is fairly simple to figure out, and knowing the dividend yield for a company you own shares of can help you compare it to the dividend yield of other stocks. This can be especially useful if you are a dividend investor looking to use your investments to create income.

    What Is Dividend Yield?

    Dividend yield is a numerical figure describing the relationship between a stock’s annual dividend payment and its stock price. Dividend yield obviously changes as a stock price changes on the stock market, so know that when you use it you are only describing the dividend yield for the stock price at that moment. If the stock price changes drastically over the course of a market day, the dividend yield would change too.

    Though dividends are often paid quarterly, for the purpose of dividend yield it is important to think about the dividend as an annual amount. Simply multiply the quarterly dividend by four to get the annual dividend, and use that figure when calculating the dividend yield for a given stock.

    How to Calculate Dividend Yield

    How to Calculate Dividends

    The formula to calculate dividend yield is a fairly simple one, and you don’t need any special math or financial training to be able to do it for any dividend stocks you own. Here it is:

    Dividend Yield = Annual Dividend/Current Stock Price

    It really is that simple. All you have to do is divide the annual dividend by the current stock price and you’ll get the dividend yield.

    Here’s an example of how to calculate dividend yield. Let’s say that the annual dividend for one share of Company XYZ is 6.00 and the current share price is $270. When we plug the numbers into the formula, it looks like this:

    Dividend Yield = $6.00/$270

    After you do the math, you’ll get this answer:

    Dividend Yield = 0.0222

    Put into percentage terms, that means the dividend yield is 2.22%.

    How to Use Dividend Yield

    Once you’ve figured out a stock’s dividend yield, you can use that number to compare it to other stocks. This can help you determine which one is giving you the best bang for you buck when it comes to dividend.

    In the above section, we figured out that Company XYZ has a dividend yield of 2.22%. Now let’s say you are considering whether to buy stock in Company XYZ or Company ABC. Company ABC has a stock price of $100 per share and an annual dividend of $4.00. We can use the dividend yield formula to figure out Company ABC’s dividend yield:

    Dividend Yield=$4.00/$100
    Dividend Yield=0.04

    The answer is 0.04, or 4%. That means that Company ABC has a dividend yield of 4%, compared to the 2.22% dividend yield offered by Company XYZ. If maximizing your dividends is your main investing goal, then you would be better served by investing in Company ABC.

    Potential Pitfalls of Dividend Yield

    How to Calculate Dividends

    While knowing how to calculate dividend yield can certainly be helpful, investors might run into problems and make mistakes if they rely too heavily on the metric when deciding which stocks to invest in. Here’s what else you should take into account as you assess stocks.

    For one, you want to make sure that the current high dividend yield a company boasts isn’t a fluke. Take a look at the past performance of a stock and see if the dividend yield has been consistent. Also look to see if the dividend has consistently gone up over a period of years.

    Second, the dividend yield may be high because the stock recently took a huge nosedive. If a stock’s price drops from $250 per share to $100 per share in a matter of weeks without the annual dividend adjusting, the dividend yield will seem very high. However, the company clearly isn’t doing well overall, and this could mean that the dividend will be in line to drop.

    Finally, look to see if the company is giving out too much of its profits in the form of dividends. Some investors like to see no more than 50% of a company’s earnings given back as dividends. If a company is paying too much in dividends, that could impact its ability to reinvest in the business and continue to grow.

    The Bottom Line

    Calculating dividend yield using the above formula will help you determine how much of a dividend you’ll get back for each share of a company you invest in compared to the price cost of the share. This is one way to compare stocks and see which is going to give dividend investors the best value. However, you’ll want to be careful and make sure you aren’t investing in stocks with a high dividend yield that is unsustainable.

    To calculate a dividend’s growth rate you need to get the dividend history. You can usually get this information from the investor relations page of the company you are researching. Once you get a list of the previous years dividends you can calculate the growth rate very easily.

    As an example, if this was the dividend paid out 2016- 2018:
    2016: $1
    2017: $1.10
    2018: $1.25

    You would say that 2017 had a 10% increase (1.10-1.00=.10, 10/100=10%) and 2018 had a 13.6% increase (1.25-1.10=.15 and 15/110=13.6%).

    So average those two out and you get a dividend growth rate of 11.8% over the last two years.

    How to Calculate Dividends

    This is the formula we use to calculate the 2 and 3-year dividend growth rates on our REIT page and the 5-year dividend growth rate on our top dividend page.

    Dividend growth is a key metric among avid dividend investors. While many companies are able to increase their dividend each year to maintain their status on the dividend aristocrat list they do not all increase their dividend by a significant amount.

    We prefer stocks that can boost their dividend by 7% or more each year and give consideration to those increasing by 5% as well. Companies need to be increasing their income to be able to boost their dividend without eating into their payout ratio. Stock buybacks that boost EPS will not aid in long-term dividend growth which is why we now focus on income and revenue growth over the EPS growth metric.

    Our dividend growth list filters stocks down to those with a dividend growth rate of 7% or more, a 3-year revenue growth rate of 10% or more and a positive 1 year return.

    Understanding your rate of return (ROR) is critical to understand your portfolio performances. There are just too many ways to do math with stocks but there is only one way to truly calculate the performance of a portfolio.

    I have never been happy with the ROR calculation of Quicken and always questioned the numbers. More importantly, how do you calculate an accurate rate of return with your shares re-invested? I am sure there is a generally accepted accounting procedure for the ROR and I know there is one from a tax perspective but I have decided to follow the following rules:

    1. It’s based on the money I invest and not the shares I purchase. That means the math starts counting once I transfer cash into the account and not when I buy a stock.
    2. It’s based on the value of the account including cash and not the value of the shares. It’s the final number at the bottom of your statement.
    3. Stock investments, mutual funds or even GICs are investment vehicles to increase the overall value of the portfolio.

    Rate of Return Variations

    Assessing Your Profit

    Let’s define how you assess your profit. I think it’s important to understand how to calculate your profit since it can be calculated differently and the total value of your portfolio takes into account your profit.

    Profits with GIC

    profit = (principal + interest) – principal

    The principal is your initial amount and the interest is what you earn from your investments.

    Profits with Stocks

    profit = (principal + capital gains) – principal

    The principal is your initial investment and the capital gains are the profit (or loss) from your investment. Your capital gain is defined by the following formula: shares count * (market value – purchase price). If you sold the stock then it’s the selling price otherwise it’s a paper capital gain.

    Profits with Dividend Stocks

    profit = (principal + capital gains + dividends) – principal .

    The same definition as above apply with the addition of the dividends you have earned. The principal would be the initial share purchase times the purchase price and the capital gains would be calculated with the initial share count as well. The dividends would be from the dividends earned (even if they are re-invested).

    * I kept this one for last as in a tax-free account, the gains are simple but in a non-registered account, you have to take into account the taxes you have to pay. I am however keeping it simple right now and disregarding the taxes.

    A Simple Way To Calculate your Rate Of Return

    For the longest time, I thought I needed to track all my transactions to get an accurate picture and that’s a lot of work. Let’s just be realistic. With dividends coming in every month and some of them with a DRIP, the accounting of every transaction across multiple accounts can become quite a chore. I already have to do that for tax purposes in non-registered accounts but it’s not something I want to do with all the accounts.

    I needed to think about it differently and ignore the actual investments I have. It’s like a black box inside and I focus on the money I put in and how much it’s worth overall. Some of it is invested and some of it is in cash. All the matters are the following:

    • When and how much is invested
    • The total worth of the account

    I decided to manage it by account but you could do it for your overall portfolio since you have the transactions for each account. The trick is simple as all you need to do is use the XIRR function of Excel or Google Spreadsheet. Let’s use the TFSA as an example since most will be familiar with the account. The total for the day is simply using today’s date and my total value of the account as a negative value. It has to be negative for the XIRR formula to work.

    How to Calculate Dividends

    In the example above, I basically have an annualized return of 11.51% in my TFSA account. I hope to double the value within 7 years and to do that I need at least 10% annually when using the rule of 72. If you withdraw from your TFSA, just enter is as a withdrawal with the appropriate transaction date and your annualized return will adjust accordingly. What I have done is track the amount of money I put in the account as opposed to the individual investments and it’s much simpler that way.

    Step by Step Instructions

    No matter what, the pen and paper should be put aside in this digital age in favor of using a spreadsheet. You can use Google Sheet or Excel and set up a comprehensive portfolio tracker with the following post as a guide.

    How to Calculate Dividend Increase Percentage

    One of the core criteria when choosing which stocks to incorporate into your dividend portfolio is the ability of the dividend to grow over time. Strong and profitable companies often will increase their dividend every year in order to reward its shareholders with an even better return. These companies will do a public announcement, also known as the Declaration Date, and will then post details about the dividend including the cash amount, Ex/Eff Date, Record Date and the Payment Date.

    Let’s start with a one year growth percentage of a dividend after the company raises it. In this example, we’ll use long time Dividend Growth Stock Coca Cola. Coca Cola (KO) is known as a Dividend Champion with over 55 years of increasing dividends. In the dividend world, this is a crazy long time and one of the reason why a lot of dividend investors include KO in its list of “Must Own” stocks.

    But how do we calculate that Dividend Increase Percentage when a company raises their dividend? Well let’s go ahead and pull out those calculators and take a stab at it. Below is the last 5 dividend payments for KO.

    How to Calculate Dividends

    In 2016, KO did four quarterly payments of $0.35 cents a share. This gives us an annual dividend of $1.40 a share. So for every share that we own, we will received $1.40 in the form of a cash dividend every year.

    Like clockwork, their first dividend payment in 2017 saw the payment go up to 37 cents a share. In order to calculate how much it went up, we simply use the following formula:

    (New Dividend – Old Dividend)
    Old Dividend

    And then we take that decimal and multiply it by 100 to put the decimal in the right place.

    In our example above, if we wanted to calculate the percent change from 0.35 to 0.37 then our calculation would look like the following:

    How to Calculate Dividends

    So that means that KO raised their dividend from 0.35 cents to 0.37, or a 5.7% increase! See, Calculating the Dividend Increase Percentage is pretty easy. Of course, if that’s too much work you can always use one of the plethora of online calculators such as this one from calculator soup.


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    • How to Calculate EBITDA From a Cash Flow Statement

    Dividends are after-tax cash payments to shareholders. The retained-earnings account in the stockholders’ equity section of the balance sheet holds the accumulated profits, minus dividend payments. The statement of cash flow shows a company’s cash flows from operating, investing and financing activities. You will need the financial statements of two consecutive periods to calculate dividends, retained earnings and cash flow.

    Calculating Dividend Payments

    Locate the Dividend Announcement

    Get the press release that announces the dividend payment, which should be in the investor relations section of a company’s website. The announcement usually includes the per-share dividend amount and the payment date.

    Find the Number of Shares Outstanding

    Obtain the number of shares outstanding from the shareholders’ equity section of the balance sheet. There is usually a note below the common stock line indicating the number of shares outstanding. If the company has preferred stock outstanding, calculate the preferred dividends separately because the common and preferred dividend amounts are usually not the same.

    Calculate the Dividends

    Calculate the product of the per-share dividend and the outstanding share count. For example, if the outstanding share count is 1 million and the company announces dividends of 25 cents a share, dividend payments equal $250,000 (1 million x 25 cents). However, note that the company pays the dividend on the payment date, which is usually a few weeks after the dividend announcement.

    Calculating Retained Earnings

    Find the Beginning Retained Earnings Balance

    Get the beginning retained earnings balance, which is the ending balance of the previous period.

    Add the Net Income

    Add the net income of the current period to the beginning retained earnings balance. The net income is equal to sales minus the sum of cost of goods sold, operating expenses, interest expenses and taxes. It is usually the bottom line of a company’s income statement.

    Find the Ending Retained Earnings Balance

    Subtract the dividend payments from the result to get the ending retained-earnings balance. For example, if the beginning retained earnings balance is $100,000, net income is $50,000 and dividend payments are $25,000, the ending retained-earnings balance is $125,000 ($100,000 + $50,000 – $25,000). Companies may prepare a separate statement of retained earnings to show the derivation of the ending retained-earnings balance.

    Calculating Statement of Cash Flow

    Find the Beginning Cash Balance

    Get the beginning cash balance, which is the ending cash balance on the previous statement of cash flow.

    Determine Cash Flow from Operating Activities

    Determine the cash flow from operating activities. Start with the net income for the period, and then adjust for noncash transactions and changes in working capital. Noncash transactions include depreciation expenses and credit sales and purchases. Working capital is the difference between current assets, such as inventory and accounts receivable, and current liabilities, such as accounts payable and interest payable.

    Find the Cash Flow from Investing and Financing

    Find the cash flow from investing and financing activities. Investing activities include investments in other companies and sales or acquisitions of fixed assets, such as buildings and equipment. Financing activities include transactions with creditors and investors, such as stock and bond issues, loan proceeds and repayments, and dividend payments to shareholders.

    Add the Cash Flows to the Beginning Cash Balance

    Add the cash flows from operating, investing and financing activities to calculate the net cash flow for the period. Then, add the net cash flow to the beginning cash balance to calculate the ending cash balance.

    How to Calculate Dividends

    A novice trader often pays attention tothe amount of expected dividends. The very process of dividend formation is quite simple – when a company makes a profit, some part of this profit is paid to the shareholders of this company. In the case of ordinary shares, it is difficult to immediately determine the amount of future dividends. You can calculate the size of the dividend by taking the average dividend for the last number of years as a percentage of net profit. This determines the current size of the dividend. However, dividends from ordinary shares of the company should not be paid under a broad investment program. In this case, dividends will not be paid even by a company that usually encourages its shareholders. Analyzing the size of dividends, it is necessary to take into account that the money that will be paid to shareholders will not be targeted for the development of the company. It is also worth analyzing the amount of interest from the company’s total profit, which is paid in the form of dividends.

    Calculation of dividends

    • Dividends are calculated after the determination of thisparameter, as a dividend yield. Dividend yield, in turn, is calculated by the formula: Dividend yield is equal to dividends paid for the last year divided by the company’s market value, multiplied by 100%.
    • Or you can use another way of howcalculate dividends and dividend yield as follows: dividing dividends from ordinary shares over the past year into the cost of this ordinary share multiplied by 100%.
    • Sometimes it is extremely difficult to determine the amount of payment of dividends for the past year – namely, for the period before the closing date of the register, or direct payment of dividends, or for the current year.
    • You can also see the advice of analysts inInternet, but, usually, it is better to make such a forecast yourself. It is easiest to make a forecast of the size of dividends and dividend yield on shares not ordinary, but on preferred ones. Usually companies are obliged to pay 10% of the company’s profits. This is the mandatory minimum of payments on these shares. It is necessary to divide this 10% share of the company’s profits into the available number of preferred shares. This is the minimum that the company will be willing to pay for the share, and usually companies do not pay more than this minimum.
    • Sometimes dividends are not taxed. So, such dividends that are accrued in favor of individuals in the form of shares or parts will not be subject to taxation and satisfy such conditions: firstly, this accrual must be static and should not change the size of its parts of all owners fixed in the statutory fund.
    • Also, the second condition for the non-taxation of dividends is an increase in the statutory fund for the total nominal value of these accrued dividends.

    Taxation of dividends

    The work of the tax agent at the time of payment andaccrual of dividends is performed by the issuer of rights of the company or other authorized person on behalf of the issuer, which performs payment or accrual of dividends. Taxation of dividends occurs according to a number of rules:

    • Need to withhold and pay taxes withThe company’s revenues will be borne by all residents who charge dividends. Also here are those who are on a simplified taxation system, as well as those who are exempt from income taxes for any reason, and indicate which. The dividend tax will be paid at a rate of 15%, it is at this rate that the amount of dividends is, on average, subject to taxation.
    • It is worth knowing that the non-resident of the country duringThe payment of income in the form of dividends income tax rates will also amount to 15%. Tax social benefits to income in the form of dividends are not applied, tk. by law, dividends are not considered to be wages.
    • So, during the time dividends are accrued,the issuer of the rights of the company will be obliged to withhold taxes from income. Thus, the shareholder – a member of the company company, will be paid the amount of dividends, which will be reduced by the amount of income tax.
    • Also, the payment of an advance contribution of the profit tax is not the reason and reason for the non-payment of personal income tax.

    Dividend payment

    Dividends are usually paid after a specialthe decision of the meeting of all the founders of the company, subject to the availability of appropriate financial resources within the timeframes that are determined by this constituent assembly. Although there are a number of nuances:

    • Before calculating dividends, it is worthwhile to know,that there is a restriction on the payment of dividends. This restriction applies once a year and is governed by the law of the current legislation, where this restriction is established for joint-stock communities.
    • So after the order is approveddistribution of profits, issued by the decision of the shareholders’ meeting, the amount of the amount sent for dividend payments must be accumulated in the sub-account 671 until the agreed maturity date.
    • Dividend payers are economiccommunities, for example, joint-stock companies, limited liability companies and with additional responsibility, etc. The founders of these communities can participate in the process of distribution of profits and receive a portion of these profits in the form of calculated dividends, the amount of which is proportional to the shares of each of the founders.

    Now you know how to calculate the dividends and the rules for their accrual. We wish you good luck!