Shareholders own stock in a company, which entitles them to a share in the firm's profits. The more shares investors own, the greater the dividends they will receive. Companies state the income that each individual share brings in terms of a stock's earnings per share (EPS). This value, which determines the dividends that shareholders receive, depends on the total income available to shareholders, and the number of outstanding shares.
Subtract from the company's net income the value of the preferred dividends. This amount includes income owed to parties separate from the common shareholders. For example, if the company has a net income of $500,000 for the year and has promised a fixed annual dividend of $50,000 to preferred stockholders, then calculate $500,000 - $50,000 = $450,000.
Divide the total earnings distributed to common shareholders by the number of outstanding shares. For example, if the company has issued 50,000 shares, then $450,000 ÷ 50,000 = $9. This is the earnings per share.
Multiply the earnings per share by the number of shares that an investor owns. For example, if an investor owns 100 shares: $9 × 100 = $900. This is the value of the dividends that the company owes the investor.
- "Cornerstones of Financial & Managerial Accounting..."; Jay S. Rich et. al.; 2009
- "Principles of Accounting"; Belverd E. Needles; 2010
- Electronic Code of Federal Regulations. "Title 12, Chapter III, Subchapter B, Part 327." Accessed June 16, 2020.
- University of Massachusetts Lowell. "Common Stock and Preferred Stock." Accessed June 16, 2020.
- Investor.gov. "Stocks." Accessed June 16, 2020.
- Investor.gov. "Callable or Redeemable Bonds." Accessed June 16, 2020.
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.