Companies often pass on a portion of their profits to shareholders in the form of dividend payments. By investing in stocks that pay dividends, you can offset some or all of a stock's price decline, thanks to the dividend income you receive. Generally speaking, companies that pay dividends, particularly those that increase their dividend consistently, are well-positioned financially. To evaluate dividend-paying stocks, you should be able to calculate the amount of the dividend you will receive and the stock's dividend yield.
Dividend Per Share
Locate the stock's dividend per share in its stock quote. You can find detailed stock quotes at most financial and investing-oriented websites. As of the stock market's close on November 19, 2010, AT&T;'s dividend per share was 1.68.
Multiply the number of shares you own by the stock's dividend per share. For instance, if you own 100 shares of AT&T;, you'll receive an annual dividend of $168.
Divide the annual dividend amount by four. With a few exceptions, most notably McDonalds, most companies pay out their dividend on a quarterly basis. In the above-mentioned example, you would receive a dividend payment of $42 per quarter if you own 100 shares of AT&T.;
Find the latest price of the stock of which you would like to calculate dividend yield. As of the November 19, 2010, market close AT&T; stock, for example, was priced at $28.32.
Divide the stock's dividend per share by its current stock price. For AT&T;, divide $1.68 by $28.32. You come up with a result of 0.059.
Carry the decimal point two places to the right to come up with the percentage, which is 5.9. Round the percentage up to 6 percent, which is AT&T;'s dividend yield as of the close of the trading day on November 19, 2010. As The Motley Fool details, as the stock price rises, dividend yield drops. As the stock prices falls, dividend yield rises. Dividend yield represents the amount of earnings you receive in relation to the price you paid to purchase a stock.