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How to Compute Cash Dividends and Stock Dividends




In our free tutorial and guide onĀ How to Invest in the Philippine Stock Market, we learned that dividends distributed by companies may be in the form of stock dividends or cash dividends.

What are Cash Dividends?

The primary type of dividends distributed to shareholders is Cash dividends.

Obviously, these are dividends paid in cash. These are usually stated in peso or dollar amounts per share, which means the total amount of dividends you will receive equals the product of the dividend per share and the total number of shares owned.

Here’s a sample computation.

How to Compute Cash Dividends

Assuming you own 1,000 shares of a company’s stock and the company declared a Php 0.10 dividend per share, how much cash will you receive as dividend income?

(Take a minute to compute it before you check the answer below!)

If you answered P100.00 dividend income, you are correct.

We got that by multiplying the number of shares you own (1,000) with the dividend amount per share (Php 0.10):

1,000 shares x P0.10 dividend per share = P1,000 total dividend income

(This is the gross amount, though. Taxes may be charged on the dividend income you’ll receive.)

What are Stock Dividends?

Stock dividends are dividends paid to shareholders in the form of additional shares of the company’s stocks.

Stock dividends are usually presented as a percentage (such as 10% or 25% stock dividends). The actual number of shares you are entitled to receive can be determined by multiplying the number of shares you own by the stock dividend percentage.

Here’s a sample computation.

How to Compute Stock Dividends

If a company declared a 25% stock dividend and you currently own 1,000 shares of stocks, how many new shares of that company’s stock will you receive as dividend?

Take another minute to compute it before continuing to read below!

If you answered 250 new shares, you are correct. The formula is:

Stock dividend rate * Shares of stocks you own

So:

25% stock dividend * 1,000 shares = 250 additional shares you will receive as stock dividends

Got it? Good!

Check out more awesome educational posts about stocks and stock investing!


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