What is a Dividend?

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.


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