When it comes to making money, a company usually has two general options. The first option is to reinvest the profits such as expanding the company's operations, buying new equipment, and so on (this method is known as "retained earnings"). Or, use the profits to pay investors. The money paid to investors is called a "dividend". Calculating dividends that will be paid to shareholders by the company is generally quite easy, just enough multiply the dividends per share (or DPS) paid by the number of shares you own. You can also determine the "dividend yield" (the percentage of your investment that your shareholding will pay in dividends) by dividing your DPS by the price per share.
Step
Method 1 of 2: Finding Total Dividend from DPS
Step 1. Determine how many shares you have
Find out if you don't know how many shares of the company you own. You can usually get this information by contacting your broker or investment agency, or checking the regular reports that are usually sent to corporate investors by mail or email.
Step 2. Determine the dividends paid per share of the company's shares
Find the dividend per share (or "DPS") value. This is the amount of dividends that investors get for each share of the company they own. For a certain period of time, DPS can be calculated using the formula DPS = (D - SD)/S, where D = the amount of money paid in ordinary dividends, SD = the amount paid in special one-time dividends, and S = the number of shares of the company owned by investors.
- For this calculation, D and SD can usually be found on the company's cash flow statement, and S on the company's balance sheet.
- Note that the company's dividend payout rate may change from time to time. So, if you're using past dividend values to estimate your future payout, there's a good chance your calculations won't be accurate.
Step 3. Multiply DPS by the number of shares
Finding an estimated dividend amount is easy if you know the number of shares of the company you own as well as the company's DPS for the most recent period of time. Just use the formula D = DPS times S, where D = dividends and S = the number of shares you own. Keep in mind that because you are using the company's past DPS value, your estimated future dividend payments may differ slightly from the actual amount.
For example, let's say you own 1,000 shares in a company that paid $500 per share in dividends last year. Plug the appropriate values into the above formula, so that D = 7,500 times 1,000 = IDR 7,500,000. In other words, if the company pays dividends this year with approximately the same amount as last year, you will get Rp7,500,000.
Step 4. Alternatively, use a calculator
If you are calculating dividends for many different shareholdings, or if the amount to be calculated is large, it can be difficult to calculate the basic multiplication to find the dividend to be paid. Therefore, use a calculator. You can also use free dividend calculators on the internet (such as this one) which offer advanced options for calculating dividends.
Other calculators that are also useful for looking at similar investment calculations, for example, this calculator works in reverse, i.e. finding DPS based on the amount of company dividends and the number of your shares
Step 5. Don't forget to factor in dividend reinvestment
The above process is designed for relatively simple problems with a fixed quantity of the number of shares owned. However, the fact is that investors often use the dividends earned to buy more shares. This process is called "dividend reinvestment". Thus, investors sacrifice short-term dividend payments in order to reap the long-term gains that result from additional shares. If you have set up a dividend reinvestment program as part of your investment, update your stock count to make it accurate.
For example, let's say you get a dividend of $1000 per year from one of your investments and you decide to reinvest it into additional shares per year. If the shares are trading at IDR 100,000 per share and have a DPS of IDR 10,000 per year, investing IDR 1,000,000 will result in ten additional shares and IDR 100,000 additional dividends per year, bringing your dividend to IDR 1,100,000 in the next year. Assuming the stock price remains the same, you can buy eleven additional shares in the following year, then twelve shares in the next two years. This combined effect will last as long as you want, assuming the stock price remains stable or rises. An investment strategy that focuses on dividends has made some people profitable, although unfortunately, there is no guarantee of significant returns
Method 2 of 2: Finding Dividend Yield
Step 1. Determine the stock price of the analyzed stock
Sometimes when investors say they want to calculate a "dividend" on their stock, they mean "dividend yield." dividend yield is the percentage of investment that the stock will pay you back in the form of dividends. The dividend yield can be considered the "interest rate" of the stock. To get started, find the current price per share of the stock you are analyzing.
- For publicly traded companies (Apple, for example), you can find the latest stock prices by looking at the websites of any major stock index (such as the NASDAQ or S&P 500).
- Please note that the company's stock price may change based on the company's performance. Thus, the estimated dividend yield of a company's stock can be inaccurate if the stock price suddenly moves significantly.
Step 2. Determine the DPS of the stock
Find the latest DPS value of the stock you own. Again, the formula DPS = (D - SD)/S where D = the amount of money paid in ordinary dividends, SD = the amount of money paid in special dividends once in a while, and S = the total number of shares of the company owned by all investors.
As mentioned above, you can usually find a D and an SD on a company's cash flow statement and an S on a company's balance sheet. As an added reminder, a company's DPS can fluctuate, so use the latest time period for the most accurate results
Step 3. Share DPS by share price
Finally, to find the dividend yield, divide the DPS value by the price per share for the shares you own (or, in other words, use the formula DY = DPS/SP). This simple split compares the amount of your dividend to the amount of money you have to pay for the stock. The bigger the dividend yield, the more money you will get on your initial investment.
For example, let's say you own 50 shares of a company and you buy those shares for $200 per share. If the company's DPS in the last time period was around Rp. 10,000, you can find the dividend yield by plugging the values into the formula DY = DPS/SP. Thus, DY = 10,000/200,000 = 0.05 or 5%. In other words, you get 5% back on your investment in each dividend round, regardless of your investment amount.
Step 4. Use dividend yields to compare investment opportunities
Investors often use dividend yields to determine whether or not to make a particular investment. Different results will look different for each investor. For example, investors looking for a steady and stable source of income will invest in companies with high dividend yields. This generally applies to companies that have been successful. On the other hand, investors who are willing to take risks for big payout opportunities will invest in new companies that have a lot of growth potential. Such companies often keep a portion of the profits as retained earnings and will not pay out much in dividends until they become more established. Thus, knowing the dividend yield of the company you intend to invest in will help in making smart investment decisions.
For example, let's say there are two competing companies that both offer dividend payments of $20,000 per share. At first they seemed to have the same good investment opportunities. However, if the shares of the first company are trading at Rp. 200,000 per share, and the shares of the second company are trading at Rp. 1,000,000 per share, the company with a share price of Rp. 200,000 is more profitable (assuming all other factors being equal). Each share of a Rp.200,000 company will give you a profit of 20,000/200,000 or 10% of your initial investment per year, while each share of a Rp1,000,000 company will give you a profit of 20,000/1,000,000 or only 2% of your initial investment
Tips
Check the company prospectus for more dividend information on specific investments
Warning
- Calculating dividend yields uses the assumption that dividends will remain constant. This assumption is not a guarantee.
- Not all stocks or funds pay out in the form of dividends, such as growth stocks or growth funds. In this case the investment income is generated from the appreciation of the stock price when you sell it. Sometimes some troubled companies prefer to reinvest profits into the company rather than paying them to shareholders.
