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