How to Estimate Future Dividends

Check the stock tables for dividend yields.

Investors who need current cash flow as well as future appreciation often look to dividend paying stocks. The dividend yields on many stocks exceed what investors could get from certificates of deposit, Treasury bonds and other investments, but unlike those investments the income is not guaranteed. Dividend payments can rise or fall over time, and that could leave you with more or less money than you expected. Estimating the future dividend yield of a potential investment is one way to reduce this uncertainty.

Things You'll Need

• Financial newspapers

Instructions

1. Gather as much information as you can about the dividend history of the company in which you plan to invest, starting with the year the firm first started declaring a dividend. Use financial newspapers, magazines and online sources to gather this dividend data.

2. Calculate the average annual increase in dividend payments. Review those annual increases to get an idea of what to expect in the future. There are no guarantees with dividend paying stocks, but focusing on companies with a strong history of dividend growth is generally a smart move.

3. Project the average annual growth of the company's dividend out over the next several years to estimate how much dividend income you can expect to receive. For instance, if you received a $500 dividend check last year and the company has a history of boosting its dividend payout 10 percent a year, you could reasonably expect to earn $550 in dividends next year and $605 the year after that.

Tips & Warnings

• Use the stock screening tools offered by your broker to screen for companies that have consistently raised their dividends year after year.

References

• CNN: Dividend Stocks Better Than Treasury Yields; Hibah Yousuf, June 2011
• BankRate.com: Develop a Strategy for Dividend Paying Stocks