Corporations and mutual funds pay cash dividends to distribute part of their profits to shareholders. Cash dividend amounts can be calculated on a per share basis or as total income from the shares you own. In addition, cash dividends may be calculated as the dividend yield on your investment. Keep in mind that all dividends are considered regular income and cannot qualify as capital gains for tax purposes.
Dividends Per Share
If you own stock that pays cash dividends, you usually receive a check each quarter. For example, you might own 1,500 shares of XYZ, Inc. and receive a dividend payout every three months of $600. Your dividend per share is the total dollar amount received divided by the number of shares you own. Thus, you would divide $600 by $1,500 to find the per share amount of 40 cents. To calculate the annual cash dividend multiply the quarterly dividend by 4 for an annual dividend of $1.60 per share.
Suppose you know the annual dividend per share of a stock and want to calculate out how much income you will receive if you buy a certain number of shares. Simply multiply the annual cash dividend per share by the number of shares. For instance, a stock that pays $1.20 per share will provide $1,200 in income for 1,000 shares. To figure the quarterly payout, divide by 4. In the example, this works out to $300 per quarter.
For investors looking for current income, dividend yield is a critical concern. Dividend yield is the proportion of your investment you receive over a specific time (usually one year). Dividend yield is usually stated as a percentage. To calculate percentage cash dividend yield, divide the total dollar amount of dividends by the amount you paid for the shares, and then multiply by 100 to convert to a percentage. If you paid $25,000 for 1,000 shares of stock and get $1,200 in annual cash dividends, you have $1200/$25,000 x 100 equals a dividend yield of 4.80 percent.
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