Calculation of Preferred Dividends

3285 Words Nov 21st, 2014 14 Pages
How to Calculate Preferred Dividends

Preferred stock (or preference shares) is a special class of stock that pays a fixed dividend set at the time of issuance. Also, preferred dividends must be paid before common stock dividends. To calculate the dividends for preferred stocks, you need to multiply the par value of the shares by the dividend percentage.

Example 1:
If the dividend percentage is 8 percent and the preferred stock was issued at $20 per share, then the annual dividend is: 8% * $20 = $1.60 per share.

Example 2:
If you owned 10,000 6.5 percent preferred shares which were issued at a par value of $50 per share, then:
The dividend per share of preferred stock = $50 * 6.5% = $3.25
Total Preferred Dividends = 10,000 shares * $50
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It is an indication of the cash return that shareholders receive from holding shares in the listed company.

Formula:
Dividend Per Share (DPS) = Dividends paid to equity shareholders / Number of issued equity shares

Example 1:
Bronze Ltd announced a total of $200,000 in dividends over the last year, and it has 4 million shares outstanding, then the DPS would be: 200,000 / 4,000,000 = $0.05 per share.

Example 2:
Calculate the DPS for Modern Product Ltd., given the following information:
Dividends proposed $30,000
Ordinary shares of $0.50 each: $600,000

Solution:
Number of shares issued = 600,000 / 0.50 = 1,200,000
DPS = 30,000 / 1,200,000 = $0.025

PROFITABILITY RATIO ANALYSIS & EXAMPLE
List of profitability ratios and formulas:

1) Gross Profit ratio = (Gross profit / Net sales) * 100 %
2) Net Profit ratio = (Net profit / Net sales) * 100 %
3) Operating profit margin = Operating income / Net sales
4) Return on Capital Employed = (Profit before interest / Capital employed) * 100 %
5) Return on Equity (ROE) = Net income / Average shareholders equity
6) Return on Assets (ROA) = Net income / Total assets
7) Cash flow return on investment (CFROI) = Cash flow / Market recapitalisation
8) Risk adjusted return on capital (RAROC) = Expected return / Economic capital
9) Return on net assets = Net income / Net assets

Example:
Calculate the profitability ratios, given the following figures:
Stock at the

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