When you purchase stocks as an investment, you can make money either through the stock price rising and then selling the stocks, or by the company paying out some of its earnings in the form of a dividend to shareholders. Often, investors make money through both. However, you can calculate the percentage return on an investment just based on the dividends the company pays each year. To do so, you need to know the dividend payments the company made and the purchase price of the stock.
Add up all the dividend payments per year to find the total annual dividends for the stock. For example, if the company made four quarterly dividend payments of $1.30, multiply $1.30 by four to get an annual dividend of $5.20 per share.
Divide the annual dividends paid by the price of the stock. For this example, if the stock cost you $87, divide $5.20 by $87 to find the return expressed as a decimal equals 0.05977.
Multiply the return expressed as a decimal by 100 to find the percentage return based on the dividends per share. Completing this example, multiply 0.05977 by 100 to find the percentage return for the year based on the dividends paid per share, which is 5.977 percent, which rounds up to 6 percent.
- Securities and Exchange Commission: Beginners' Guide to Financial Statements
- Bureau of Economic Analysis. "How Are Dividends Defined in the U.S. National Accounts?" Accessed Nov. 10, 2019.
- U.S. Securities & Exchange Commission. "Ex-Dividend Dates: When Are You Entitled to Stock and Cash Dividends." Accessed Nov. 10, 2019.
- NASDAQ. "The Truth About Dividend Payout Ratio." Accessed Nov. 11, 2019.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."