How to Calculate Dividends — Complete Guide with Formula & Examples

Manish bought ITC shares, which provide a Dividend, and is interested in determining how much dividend he earned in the past 3 years. This is how he made it happen:

1. Find Dividend Per Share (DPS): ITC declares dividends yearly (e.g., ₹10, ₹11, and ₹12 per share for 2021, 2022, and 2023).
    
2. Check Number of Shares: Manish holds 1000 shares of ITC.
    
3. Calculate Yearly Dividend: Multiply DPS by shares held.

Total Dividend (3 Years) = ₹10,000 + ₹11,000 + ₹12,000 = ₹33,000.

Manish earned ₹3,300 in dividends by holding 100 ITC shares. Simple!

What is a Dividend?

Dividends are a form of payment that businesses offer their shareholders from their earnings. When you own stocks, you can receive regular payments of cash.

Example: Manish’s Dividend from ITC
 

• Manish owns 100 shares of ITC.
   
• ITC pays dividends every year.
   
• Over 3 years, he earned:

Key Points:
 

• Dividends are paid per share (e.g., ₹10 per share).
   
• More shares = More dividend income.
   
• Not all companies pay dividends (only profitable ones).
   
• Dividends can be cash or extra shares.

Manish earned ₹3,365 without selling his shares. It’s like getting a bonus for being a long-term investor!

Types of Dividends

Dividends come in different forms. Here are the main types with Manish's example:

1. Cash Dividend
 

• Paid in cash (most common type).
   
• Example: ITC paid Manish ₹10.15 per share in 2021.

2. Stock Dividend
 

• Paid as extra shares instead of cash.
   
• Example: If ITC gave 1 bonus share for every 10 shares, Manish would get 10 extra shares.

3. Special Dividend
 

• One-time extra payment when a company has extra profits.
   
• Example: If ITC paid ₹5 extra per share in 2022.

Key Points:
 

• Most investors prefer cash dividends.
   
• Stock dividends increase your share count.
   
• Special dividends are rare but nice bonuses.

Manish likes cash dividends because he gets real money in his bank account.

How to Calculate Dividend?

Here's how Manish calculates his dividend income from ITC shares:

Step 1: Find the Dividend Per Share (DPS)
 

• Check company announcements for the dividend amount.
   
• ITC declared ₹12 per share for 2023.

Step 2: Count Your Shares
 

• Manish owns 100 shares of ITC.

Step 3: Multiply DPS by Shares
 

• Calculation: ₹12 × 100 shares = ₹1,200

Step 4: Add All Dividend Payments
 

• Manish's 3-year dividend from ITC:

Bonus Step: Check Dividend Yield

• Current ITC price: ₹400
   
• Yield = (DPS ÷ Share Price) × 100
   
• (12 ÷ 400) × 100 = 3%

Important Notes:

• Companies may pay dividends quarterly or yearly.
   
• Dividend amounts change each year.
   
• You must own shares before the ex-dividend date to qualify.
   
• Dividends above ₹5,000 are taxed at 10%.

Manish keeps track of his dividends in a simple spreadsheet. This helps him see how his passive income grows each year.

Factors Affecting Dividend Income

Several factors determine how much dividend income Manish earns from his ITC shares. Here's what affects his payments:

1. Company Profits
 

• More profits usually mean higher dividends.
   
• Example: When ITC's profits grew, dividends increased from ₹10.15 (2021) to ₹12 (2023).

2. Dividend Policy
 

• Some companies pay regular dividends (like ITC).
   
• Others may cut dividends during tough times.

3. Number of Shares Owned

• More shares = More dividend income.
   
• If Manish buys 50 more shares (total of 150), his 2023 dividend becomes ₹1,800 (150 × ₹12).
   

4. Dividend Tax
 

• Dividends above ₹5,000/year are taxed at 10%.
   
• Manish's ₹3,365 dividend (2021-2023) is tax-free as it's below ₹5,000/year.

5. Business Sector
 

• Stable sectors (FMCG, IT) often pay regular dividends.
   
• Cyclical sectors (auto, metals) may cut dividends.
   

Impact on Manish's Dividend:
 

Key Takeaways:
 

• Manish earns more when ITC is profitable.
   
• Buying more shares boosts his income.
   
• Taxes only matter for large dividend amounts.
   
• Choosing stable companies helps maintain dividend flow.

Dividend Yield: A Useful Metric

Dividend yield shows how much return you get from dividends compared to the stock price.

• Calculation: (Dividend Per Share ÷ Current Stock Price) × 100
   
• Manish's Example:
   
  • ITC's 2023 dividend: ₹12 per share
     
  • Current ITC stock price: ₹400
     
  • Yield = (12 ÷ 400) × 100 = 3%

What It Means:
 

• Higher yield = Better dividend return.
   
• 3% means Manish earns ₹3 yearly for every ₹100 invested.
   
• Helps compare different stocks.

Note: Very high yields may signal risk, as the stock price might be falling. Manish checks yields before buying dividend stocks.

Conclusion

Earning passive income from investments can be easy, as Manish did with his ITC shares. After three years, he made ₹3,365 with his 100 shares, without any sales. The top tips he picked up are to find the dividend per share, multiply it by your number of shares and watch out for how profits, the dividend policy and taxes may influence your income from that company. 

Stock comparison becomes easy with dividend yield - at 3%, ITC delivers ₹3 yearly profit for each ₹100 it puts in. Getting big dividends might be riskier for investors than regular ones. If Manish holds ITC shares over the long run, he will keep getting greater dividends. If you are already an investor or new to it, having this basic knowledge helps you pick better dividend stocks for wealth growth.

FAQs

1. What is a dividend?

A dividend is money a company pays to its shareholders from its profits. If you own shares, you get a portion of the earnings, like Manish, who received ₹3,365 from ITC over three years.

2. How often are dividends paid?

Most companies pay dividends quarterly or yearly. ITC pays yearly, so Manish gets one payment each year.

3. How do I calculate my dividend income?

Multiply the dividend per share (like ₹12) by how many shares you own (like 100 shares = ₹1,200). Add up all payments to see your total earnings.

4. Do all companies pay dividends?

No, only profitable companies that choose to share earnings pay dividends. Growing companies often reinvest profits instead.

5. What is dividend yield?

It shows how much dividend you earn compared to the stock price. ITC's 3% yield means ₹3 yearly per ₹100 invested.

6. Are dividends guaranteed?

No, companies can reduce or stop dividends if profits fall. Manish knows ITC's dividends may change yearly.

7. How do I receive my dividend money?

Dividends go directly to your bank account linked to your demat account, usually within 30-45 days after the announcement.

8. Are dividends taxed?

Yes, dividends above ₹5,000 per year are taxed at 10%. Manish didn't pay tax as he earned ₹3,365 (below ₹5,000).

9. What's better: high dividend or stock growth?

It depends. Dividends give regular income (good for retirees), while growth stocks may rise in value over time (good for long-term investors).

10. How can I find dividend-paying stocks?

Look for stable companies in sectors like FMCG (ITC), banks, or utilities. Check their dividend history on company websites or stock market apps.

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About the Author

LoansJagat Team

‘Simplify Finance for Everyone.’ This is the common goal of our team, as we try to explain any topic with relatable examples. From personal to business finance, managing EMIs to becoming debt-free, we do extensive research on each and every parameter, so you don’t have to. Scroll up and have a look at what 15+ years of experience in the BFSI sector looks like.