Many investors invest in banal inventory in method to supplement their resources ended the issuance of dividends. Dividends copy fairness returns paid elsewhere to investors in convert for the call of their way in the occupation. It's a skilled brainstorm for typical stockholders to fully figure out what determines the dividend per participation that they Testament sequentially appropriate from a association.
It then takes this amount and divides it by the number of outstanding shares of common stock.
The board Testament figure the complete dollar dimensions to remuneration gone and the time when the corporation will pay these dividends. This process is called declaring the dividend.
Outstanding Shares
In order to determine the dividend per share that it will pay, a company needs to know how many shares are outstanding. Outstanding shares consist of all shares of company stock that have been issued and are being held by stockholders. This figure does not include shares that the company has not yet issued. It also does not include treasury shares, which are shares that the company has purchased for itself. A company will consider both the number of outstanding preferred shares and outstanding common shares prior to determining a dividend per share amount.
Payment of Preferred Dividends
A corporation must pay all preferred stockholders their dividends first. Each share of preferred stock includes a stated dividend rate which predetermines the amount of dividend to be paid for that share of stock. In order to determine the total preferred stock dividend payout, the company will simply take the total number of outstanding preferred shares and multiply this figure by the dividend rate.
Payment of Common Dividends
After preferred shareholders are compensated, common stockholders can be paid. The company determines the total dollar amount of dividends to be paid to the common stockholders by taking the total dividend declared by the board of directors and subtracting the total amount to be paid to the preferred shareholders.
