How to Calculate Dividends

Dividends are investment earnings that come from stocks and mutual funds that you invest in. When you buy stocks or participate in a mutual fund, you are buying shares of a company. That entitles you, the investor, to a portion of the company's earnings, known as dividends. Knowing how to calculate dividends helps you stay on top of your investments.

Steps

1. Locate the percentage dividend listed in the prospectus of the invested stock or fund.
   
   • You should always have a prospectus on your investments, but, if it's not immediately available, check the company's website or with your investment broker.
     
   • The percentage dividend will most likely be listed as a percentage of the original asking price (also known as the par value) of the stock.
     
2. Multiply this dividend percentage by the original price per share. This changes the percentage into a dollar amount.
   
   • For example, a dividend of 5.25 percent on a stock that was issued at $35 a share means 35 x .0525 = 1.8375 or roughly $1.84 per share.
     
3. Learn your annual dividends by multiplying the dividend by the number of shares you have.
   
   • For example, if you have 1,200 shares of a stock paying $1.84 per share, you would earn $2,208 in annual dividends.
     
   • Since dividends are often paid quarterly, you would divide the annual dividends by 4: 2,208 / 4 = $552 per quarter.
     
4. Find out the current market price for your shares.
   
   • You'll find this information where the stock is traded. For example, a NASDAQ traded stock would have the current market price at www.nasdaq.com.
     
   • Investment websites, such as The Motley Fool (www.fool.com) or Market Watch (www.marketwatch.com), also provide current stock quotes to help in calculating dividends.
     
   • If you use an investment broker, he or she can also provide this information to you.
     
5. Calculate the dividend yield, also known as the current yield, with the current market price and annual dividend. This is often used to track high investment earnings.
   
   • The dividend yield is the annual dividend divided by the share price and shows the return on your investment.
     
   • If the annual dividend is $1.84 and the current share price is $50 (1.84 / 50 = 0.0368), then the results of calculating dividend yield is 3 percent.
     

Dividend yields are often posted on investor websites.

1. Use dividend yields to analyze various investment earnings and make investment decisions.
   
   • With current investments, a significant rise in a dividend yield (more than 10 percent) may be tied to a drop in current market price, which may lead to a drop in annual dividends.
     

Tips

• Check your investment's prospectus for more information about dividends for a specific investment.
  

Warnings

• Not all stocks or funds pay dividends. Some are primarily growth stocks or growth funds. Investment earnings come from the appreciation when you sell. Other times, companies that aren't doing well may reinvest dividends into the company.
  
• Calculating dividend yields involves the assumption that dividends will remain constant. An assumption is not a guarantee.