Dividend Income Calculator

What is Dividend Income?

Dividend income is a form of investment income that an investor, or shareholder, receives from a company for owning shares in the company.

Dividends are a portion of a company's earnings that shareholders receive as dividend income. Typically, dividends are distributed on a quarterly basis. Depending on the company policy, dividends may be distributed on a monthly, semi-annually (twice per year), or annually.

Why Invest in Dividend Stocks?

Investing in dividend stocks is typically a lower risk investment. The lower risk is due to dividend stocks typically being less volatile, which means the price fluctuations are less extreme.

Investors buy-to-hold dividend stocks for the long-term, with the expectation of receiving dividend income on a regular basis. Since investors are holding for the long-term, this helps to add price stability and mitigate risk by reducing volatility.

The reason investors buy dividend stocks is because dividend investing allows an investor to lower risk while receiving a consistent reward in the form of dividends.

Ex-Dividend Date

The ex-dividend date is the date shareholders are no longer entitled to receive the next dividend payment. To receive the next dividend payment, an investor must own a share of the company before the ex-dividend date.

Typically, the exchange or market, that a stock is traded on, determines the ex-dividend date. If an investor buys the stock on the ex-dividend date, they will not be entitled to receive the next dividend payment.

The record date is the date that dividends are paid to shareholders, which is usually two days after the ex-dividend date.

It is important to consider the ex-dividend date when investing in dividend stocks, as it can impact the amount of dividend income investors receive.

Dividends Per Share (DPS)

A company may decide to stop distributing dividends, or decrease the amount of dividends per share (DPS), if they are financially struggling.

If a company has a history of consistently distributing dividends to their shareholders, on a regular basis, then that is usually a good indicator that the company is financially stable.

Company's that are financially stable are the ones investors want to own shares in and hold for the long-term. Investors should buy shares in quality companies that are performing well financially and that they never want to sell.

Dividend Yield

Dividend yield is a financial metric used by investors to measure their expected dividend income relative to their investment.

For example, a stock that is currently $100 and pays an annual dividend of $5 per share has a 5% dividend yield. Dividend yield is the ratio between the dividends per share and current price.

Dividend yield formula:

Dividend yield = dividends per share / current price

In the above example, the dividend yield is 5% because $5 (dividends per share) / $100 (current price) equals 0.05 or 5%.

Dividend yield changes daily because the price of a stock changes daily. Dividend stock investors usually want to buy stocks that have a higher dividend yield, because then they can purchase more shares and receive a larger dividend income relative to their investment.

It is important to understand that a high dividend yield does not necessarily imply that the stock is a good investment, as it may indicate financial risk and be unsustainable if a company's earnings decline or other financial struggles occur.

Dividend Growth Rate

The dividend growth rate is a financial metric that dividend stock investors use to measure and estimate the growth of their dividend income.

For example, if a company paid a $5 dividend per share to shareholders last year, but now is paying a $6 DPS, then the dividend growth rate for that stock is 20%. If that company continues to increase their dividend payments at the same annual dividend growth rate of 20%, then investors receive a 20% growth in their dividend income per year.

A company that is able to not only consistently pay a dividend but also increase the amount of dividends per share, is a company that is likely doing well financially and is a good company to potentially invest in.

Dividend Champions

Dividend champions is a term used by dividend stock investors to describe companies that have a long history of paying and increasing the dividends per year.

A company is a dividend champion given that the following rules are met:

• 25 or more years of paying a dividend every year

• 25 or more years of increasing the dividend amount every year

Companies that are able to consistently pay a dividend consecutively, every year, and also grow that dividend every year, are usually very large, successful, and mature companies that are financially stable.

To find dividend champion stocks, we created a Stock Screener that lets you filter stocks based on dividend metrics, such as dividend yield, dividend growth rate, and consecutive years of dividends and dividend growth.

To simplify your dividend champion stock search, use our free Dividend Champion Stocks preset screener.