Definition of 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 a Net Income of $1 billion, Retained Earnings of $200 million and Shares Outstanding of 400 million, the dividends paid are:

How to calculate dividends 

To calculate dividend yield, use the dividend yield formula. This can be done by dividing the annual dividend by the current stock price: For example, if stock XYZ had a share price of $50 and an annualized dividend of $1.00, its yield would be 2%. When the 0.02 is put into percentage terms, it would make a 2% yield.