How to Calculate Dividends on Financial Statements
Dividends are the return of investor capital back to the investor. Dividends are normally in the form of cash and/or stock. Companies in the early stages of growth do not normally pay cash dividends. They opt instead to reinvest cash into the business to fund growth opportunities. Instead of paying a cash dividend, many times the company will issue a stock dividend. Cash dividends are taken from retained earnings, which is a product of net income. Cash dividends reduce retained earnings and cash, which lowers the net worth of the company. Dividend payments do not lower net worth, they just increase the number of shares outstanding, reducing the value of each share.
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Instructions
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Look on the balance sheet to find how many stock shares are outstanding for the class of dividends being calculated. If the balance sheet does not list this information, a simple reverse calculation of market capitalization and share price will produce the number of applicable shares outstanding.
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Review the balance sheet and locate the liability account called dividends payable. Many of the main stream websites will not break this account out separately, so it may be necessary to get it straight from the Securities and Exchange Commission where it is reported.
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Divide the number of shares outstanding by the total dividends payable. The result is the dividend payout per share.
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Divide the dividend payout per share by the current share price. This figure is the dividend yield, expressed as a percentage of share price. As with any dividend, the amount paid per share is declared by the board of directors, so using the share price at the time of the board meeting would produce a more accurate yield.
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References
- "Financial Accounting: The Impact on Decision Makers"; Gary A. Porter, et al.; 2009
Resources
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