What Is A Dividend?

Patrick Curtis

Reviewed by

Patrick Curtis WSO Editorial Board

Expertise: Investment Banking | Private Equity

A dividend is a payment by a company to its shareholders representing a portion of earnings. The board of directors of the firm determines the amount paid in a dividend. In order to calculate a dividend, you take away Retained Earnings from Net Income and then divide by Shares Outstanding. For example, if a company has Net Income of $1 billion, Retained Earnings of $200 million and Shares Outstanding of 400 million, the dividends paid are:

  • ($1,000,000,000 - $200,000,000) / 400,000,000 = $2 per share

Usually, dividends are quoted in amount per share, for example a company may pay $1 dollar per share back to shareholders. Dividends can be paid in different forms such as cash, stock and property but the most common form is cash.

To learn more about this concept and become a master at Financial Statement modeling, you should check out our FSM Modeling Course. Learn more here. 

Module 1: Getting Started

Module 2: Fundamental Concepts

Module 3: The Income Statement

Module 4: Working Capital

Module 5: PP&E and Intangibles

Module 6: The Cash Flow Statement

Module 7: Debt & Interest Schedule

Module 8: Finishing Your Model

Module 9: Bonus

Learn More Here

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Patrick Curtis is a member of WSO Editorial Board which helps ensure the accuracy of content across top articles on Wall Street Oasis. He has experience in investment banking at Rothschild and private equity at Tailwind Capital along with an MBA from the Wharton School of Business. He is also the founder and current CEO of Wall Street Oasis This content was originally created by member WallStreetOasis.com and has evolved with the help of our mentors.