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.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."