How to Calculate the Dividend With the Net Income and a Stockholder's Equity

by Ryan Menezes, studioD

A company distributes its net income among its shareholders, who each own a share of the firm's profits. The portion of a company's profits that any shareholder receives as dividends is proportional to the equity that the investor has contributed to the company. This, in turn, is the ratio between the number of shares that the investor owns and the total number of outstanding shares. Yet part of the company's income also goes toward preferred dividends, which reduces the amount available to the owners of common stock.

Multiply the number of preferred shares by the dividends that the company promised. For example, if a company has promised $12 in dividends for each of 3,000 preferred shares, multiply 3,000 by $12, giving $36,000.

Subtract the value of the preferred dividends from the company's net income. For example, if the company makes a net income of $420,000, subtract $36,000 from $420,000 to get $384,000.

Divide the equity that a shareholder owns by the company's total equity. For example, if the investor contributed $1,000 of equity, and the company has a total equity of $400,000, divide $1,000 by $400,000 to get 0.0025.

Multiply this decimal value by the income that goes to shareholders. Continuing with the example, multiply 0.0025 by $384,000 to get $960. This is the amount that the shareholder receives in dividends.

About the Author

Ryan Menezes is a professional writer and blogger. He has a Bachelor of Science in journalism from Boston University and has written for the American Civil Liberties Union, the marketing firm InSegment and the project management service Assembla. He is also a member of Mensa and the American Parliamentary Debate Association.

Photo Credits

  • Comstock/Comstock/Getty Images