How to calculate a dividend payment

A dividend is a payment to the shareholders of the company”s profits. Dividend payments vary, depending on the type of shares and the company”s business strategy. Very profitable companies that are strongly growth oriented can pay low dividends (or none) because the benefits are reinvested. Other companies that are well established may pay higher dividends, especially in preferred shares. Any payment of dividends will depend on each company but as long as the company has benefits. It is easy to calculate a dividend payment, but there are several ways to do it.

Steps to follow:

1.Calculate the dividend payment to see how much you will receive based on the number of shares you own. Most dividends are paid quarterly, so you can do this calculation, either on an annual basis or quarterly.

2.Multiply the number of shares by the annual dividend to find out how much the dividend payment will be. For example, if you own 1,500 shares of X Y Z Corporation and the dividend is $ 1.50 per share, the annual dividend payment is $ 2,250. Divide this figure by 4 to find the quarterly payment, which would be $ 562.50.

3.Discover the return on investment that represents a dividend payment. The return is the annual percentage of your investment in the form of dividends paid. For example, if you paid $ 20 per share and the dividend is $ 1.50, your return is $ 1.50 divided by $ 20 (multiplied by 100 to get the percentage). The yield in this example is 7.5 percent. But if you paid $ 150 per share, your return would be only 1.0 percent. The return is important to value the investment.

4.Calculate the rationale for dividend payments. This is the dividend ratio of the company”s net income. For example, if the company had 25 million after-tax benefits and paid 10 million in dividends, the dividend payment ratio is 25 million Dollars divided into 10 million Dollars, 2.5.

5.Growth oriented companies often have high dividend payment rates, indicating that they are withholding most of the net income to invest in the expansion. On the contrary, a low proportion of dividend payments suggests that the company is not likely to grow much more. If a company has a high return, it can still be a good investment if you are looking for income instead of capital growth.

6.Calculate the dividend coverage. This is a variation of the proportion of dividends paid. This is nothing more than the profit per share divided by the dividend. For example, if earnings per share are $ 2.50 and the dividend is $ 1 per share, dividend coverage is 2.5.

7.Dividend coverage is useful because it is often easier to find income and dividend amounts per share than net income and total paid as dividends.

Tips

• Before making an investment in the stock market looking for a return via dividends, we recommend you check it with your bank or savings bank, they are the experts.