Dividend profit is a financial ratio that allows you to measure the profitability of a share. To do this, the indicator takes into account the price of the security and the remuneration it offers to investors.
The first step in calculating dividend profit is to estimate the dividend per share. To do this, the pay out, which is the portion of the profits that is distributed among the partners, is divided by the number of participations.
At this point it should be explained that not all the profits obtained by the firm should be delivered as dividends. It may be, for example, that a part of the net profit is destined to invest in new machinery.
It should be noted that the pay out of the previous year is used, although an estimate for the coming period can also be used.
Finally, the dividend per share is divided by the price of each security, considering the last price. The result is expressed as a percentage.
The dividend profit formula is:
Dividend profit profit
The usefulness of the dividend benefit is that it allows you to compare the performance of two or more stocks. This, based on its price and the income offered by the company.
In other words, this indicator goes beyond the observation of the stock market movement, including for the analysis the income expected by the shareholders.
Dividend profit example
To apply the previously explained, let's look at the following example:
Suppose a company has 200 stocks listed on the stock market. The net profit for the last fiscal year was US $ 2,000 and it has been officially announced that 50% of this amount will be distributed to investors.
If the price of each security today is US $ 20, we solve the exercise as follows:
Payment: 2,000 * 50% = US $ 1,000
Dividend per share: 1,000 / 200 = US $ 5
Dividend benefit: 5/20 * 100 = 25%