In order to run a dividend calculation, you can either use a dividend calculator, acesss your broker account, or do this yourself. If you are searching for a calculator, this one is simple yet effective.
How is dividend calculated?
Dividend calculations need several different values in order to work depending on your end goal:
- Dividend yield calculation
- Dividend per share (DPS), see below
- Earnings per share (EPS), see below
- Calculate dividend payout ratio (DPR), see below
Note, although the below calulationsd are useful, oftentimes a broker will provide you with these figures & more, under their fundamental analysis section.
Dividend calculation for DPS
DPS is a useful calculation when investors are reviewing the profitability of a company. In short, if this value rises over time, the company will be doing well. If it drops, the company either issued more shares, or is earning less than before.
Dividend per share, is calculated by taking the sum of total dividends, substracting any potential special dividends, then dividend by the total shares outstanding.
The value returned, will give you the dividend amount you can expect to earn per share of that company.
Earnings per share calculation
Earnings per share can give you an idea of what profits shareholders would receive if all was paid in dividends. Hence, it is a good way of understanding if a company has enough financial liquidity to work with.
Calculating EPS is done as follows: Take the companies net income and divide it by the outstanding shares.
Dividend calculation for DPR
Dividend payout ratio tells you how much of net income is paid to shareholders. For example, a promise of 15% dividend is often too good to be true. As this would mean a company would pay nearly a sixth of it’s profits back.
This is not sustainable as most organizations need this money to reinvest into R&D, inventory, staff and other initiatives to stay ahead in the market & expand business.
You can calculate the dividend payout ratio by dividing total dividend by the net income of a company.
|Broker name||Type||Review||Rating||Broker site|
|CMC markets*||Mostly Trader||Link||4.5||Visit broker|
|Trading212||Investor & Trader||Link||4.1||Visit broker|
|Bux Zero||Investor & Trader||Link||4.0||Visit broker|
|Admiral Markets||Investor & Trader||Link||4.0||Visit broker|
|Fusion Markets*||Trader||Link||3.5||Visit broker|
*If you choose a trading broker, please remember: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.