What is Foolsaurus?

It's a glossary of investing terms edited and maintained by our analysts, writers and YOU, our Foolish community.

How to Calculate Dividends Paid Out With Retained Earning & Net Income

Original post by Mark Kennan of Demand Media

On a company's balance sheet, the retained earnings balance equals the company's prior retained earnings plus any additional retained earnings for the current year. In any given year, the company divides its net income between holding on to the money and reinvesting it in the company and paying it out to shareholders through dividends. If you know the retained earnings, net income and outstanding shares, you can figure out the dividends per share the company pays out.

Step 1

Calculate the change in retained earnings by subtracting the company's retained earnings balance from the previous year from the current retained earnings. For example, if the company started the year with $300,000 in retained earnings and ended the year with $500,000 in retained earnings, the company retained an additional $200,000 in earnings during the year.

Step 2

Subtract the retained earnings from the net income to find the total dividends paid out. For example, if the company retained $200,000 in earnings in the current year and had $650,000 in net income, the company paid out $450,000 in dividends.

Step 3

Divide the dividends paid by the number of shares outstanding to find the dividends paid per share. In this example, if the company has 150,000 shares outstanding, divide $450,000 in total dividends by 150,000 shares to find the company pays $3 in dividends per share.



About the Author

Mark Kennan is a freelance writer specializing in finance-related articles. He has worked as a sports editor for "Ring-Tum Phi" and published articles on a number of online outlets. Kennan holds a Bachelor of Arts in history and politics from Washington and Lee University.