When a company makes money, it usually has two options. It can reinvest the income to expand its field of action with, for example, the purchase of new machinery (this money is called "retained earnings" or retained earnings). Alternatively, it can use the profits to pay investors. In this case we speak of "dividends". Finding the dividends you are entitled to from a company is quite simple; you just have to multiply the dividend paid per share (DPS) by the number of shares you own. It is also possible to determine the "dividend yield", which is the percentage of the initial investment that the securities will pay you back in dividends; this calculation is done by dividing the DPS by the price of each share.
Steps
Method 1 of 2: Find the Total Dividends from the DPS
Step 1. Determine how many shares you own
First, if you don't know the number of shares you own in a particular company, find this value. You can contact your broker, bank, investment agency or by checking the report that is regularly sent to investors by email or regular mail.
Step 2. Determine the dividends paid per share of the company
The second data you must have is the "DPS", which is the amount of dividends that the company pays for each share. This represents the amount of money each investor has earned for each share owned. In a given period the DPS can be calculated by the formula DPS = (D - SD) / S where D = the money paid for dividends, SD = a one-time payment and S = the number of shares owned by the investors.
- To solve this equation, you can find the data of D and SD from the company's cash flow report, while S is present on its balance sheet.
- Remember that the frequency of dividend payments can change over time. Also, if you are using a past dividend to estimate how much you will be paid in the future, there are many chances that the calculation will not be accurate.
Step 3. Multiply the DPS value by the number of shares
When you know the number of shares you own and the fairly recent DPS value, then you can easily estimate how much you will be entitled to. Simply use the formula D = DPS x S where D is your dividends and S is the number of shares you own. Remember that you are using a DPS value from the past, so you can only get an approximation of what will actually be paid to you.
Let's consider the example in which you own 1,000 shares in a company that last year paid 0.75 euros in dividends for each share. Enter the value in the above formula and you will get that D = 0.75x1.000 = €750. In other words, if the company pays the same amount per share as last year, you should expect to receive € 750.
Step 4. Alternatively, consider using an online calculator
If you have to calculate the dividends that come from the shares of different companies, then the simple multiplication could become a bit lengthy calculation. If so, you can do an online search to find calculators and spreadsheets to help you do this.
There are also other models of calculators that allow you to do similar operations. Some also allow the backward calculation thanks to which you can detect the DPS starting from the total sum of dividends paid and the number of shares held
Step 5. Don't forget to also take into account the dividends that are reinvested
The procedure explained above works in the relatively simple case where the number of shares held is fixed. In real life, investors often reuse the dividends earned to buy more shares. To do this, an investor sacrifices the immediate gain in favor of a long-term result. If you have set up a reinvestment system in your financial program, don't forget to take this into account, as the number of shares you own increases steadily.
Let's assume that you have earned € 100 a year in dividends from one of your investments and that you have given instructions to invest this money in additional shares every year. If the shares have a value of € 10 each and the DPS is € 1 per year, it means that each year your € 100 has allowed you to buy another 10 shares and then another € 10 of dividends, This brings your share of dividends. to € 110. Assuming that the share price remains unchanged, you could buy another 11 shares the following year, then another 12 and so on
Method 2 of 2: Find the Dividend Yield
Step 1. Determine the price of each share of the stock you are reviewing
Sometimes, when investors say they want to calculate the "dividends" of their stock, they really mean the "dividend yield". This concept refers to the percentage of your initial investment that the stock of shares pays you back in the form of dividends; in other words, you can think of the dividend yeld as an "interest rate" on your set of shares. First you need to find the current share price of the stock you are considering.
- For publicly traded companies (such as Apple Inc.) you can find the price of each share by checking the websites of the major market indices (e.g. NASDAQ, S&P 500 etc.).
- Remember that the price of each share can fluctuate based on the performance of the company. So a dividend yield estimate could be inaccurate if the company bills more or less than expected.
Step 2. Determine the DPS of the stock
At this point you need to find the updated DPS value of the shares you own. We remind you that the DPS can be calculated with the formula DPS = (D - SD) / S where D = the money paid by normal dividends, SD = the one-time paid money and S = the number of shares that investors own.
As mentioned earlier, you can find D and SD on the company's cash flow ratio and S on its balance sheet. As an additional note we remind you that a company's DPS can fluctuate over time, so you should use recent data for an accurate calculation
Step 3. Divide the DPS by the price of each share
To find the dividend yeld, you need to divide the DPS by the unit value of the shares you own (basically DY = DPS / SP). This simple ratio compares the amount of money that has been paid to you in the form of dividends with the amount of money you have invested to buy the stock of shares. The higher its value, the more money it will make from your investment.
Let's consider the hypothesis in which you own 50 shares purchased at the price of € 20 each. If the recent DPS of the company is around € 1, you can find the dividend yeld by entering this data in the formula DY = DPS / SP i.e. DY = 1/20 = 0, 05 or 5%. This means that 5% of your investment is returned to you every year in the form of a dividend, regardless of the size of the investment itself.
Step 4. Use the dividend yield to compare different investment opportunities
This value is often used by professionals in the sector to understand how profitable an investment can be. Suppose an investor is looking for a steady and regular source of income by pledging his money into a company with a high dividend yield (usually stable and successful companies). On the other hand, an investor who wants to take a risk to get a higher profit, can focus on young companies with a lot of growth potential (these are companies that usually do not pay dividends because they reinvest them in the company itself until they are successful). So, knowing the dividend yeld of the companies you are thinking of investing your money in helps you make an informed and informed choice.
Suppose there are two competing companies each offering a dividend per share of € 2. While both may seem like a good investment at first glance, the former is priced at € 20 per share and the latter at € 100. At this point the company with a share price of € 20 is a better deal (all other values being equal). Each € 20 share will allow you to return 2/20 = 10% of your investment each year; each € 100 share will allow you to return 2/100 = 2%
Advice
For more specific information on dividends, check your investment prospectus
Warnings
- Not all stocks and mutual funds pay dividends. Some stocks are essentially stocks or growth funds. The gains from this type of investment come from the price increase when they sell. In other cases, some companies that are experiencing difficult times may reinvest dividends into their own business instead of paying them to investors.
- Calculating the dividend yield implies the assumption that dividends remain constant. A guess is not a guarantee.
