How to Calculate Profit of a Non Franked Dividend

by C. Taylor

A franked dividend is one with franking credits attached, which allows investors to avoid some or all tax liability on the return. This system is primarily found in Australia, so chances are it will not be an option in the United States, where dividends are taxed as capital gains. When calculating profit on non-franked dividends, you have several options. You can calculate the total amount received and optionally factor in taxes. You can also derive the dividend yield, which tells you the percent return from dividends with respect to the stock purchase price. Finally, you can calculate the overall expected return, which includes increases in stock price as well as dividends received.

1. Add all dividends you received, including each quarterly payment and any year-end bonus applied. This is your total profit from just the dividends. If you wish to factor in taxes, determine your tax rate and multiply the dividends by one minus that rate. That will calculate the amount you get to keep. For qualified dividends, the tax rate is 15 percent if your base tax rate is at least 25 percent or zero percent if your base tax rate is less than 25 percent. As an example, if you received $500 in qualified dividends and your regular tax rate is 28 percent, multiply $500 by 0.72 to arrive at $360 in dividend profit.

2. Divide the annual expected dividends by the stock purchase price to calculate dividend yield. For example, if you receive $3 in dividends per share on a $75 stock, your dividend yield would be 0.04, or 4 percent.

3. Add the increase in stock price to the dividends received and then divide by the original stock price to calculate overall return. As an example, if you purchased a stock for $75, and it rose to $85 with a $3 dividend, you would divide $13 by $75 to calculate an overall return of 0.173, or 17.3 percent.

Photo Credits

  • Zedcor Wholly Owned/ Images