Researching Your Dividend Stock Picks with Important Formulas

By Lawrence Carrel

Part of Dividend Stocks For Dummies Cheat Sheet

As with all stocks, you should research the dividend stocks you’re considering before you buy them to ensure they’re good investments. These formulas help you determine whether a stock’s dividend and other markers are sufficient to meet your needs. Check out the company’s balance sheet, income statement, and cash flow statements for the figures you need to crunch the numbers using the following formulas.

Dividend Per Share (DPS)

Total Dividends ÷ Total Shares = Dividend Per Share (for the quarter)

$_______________ ÷ _______________ shares = $_______________ DPS

Indicated Dividend Per Share (IDS)

Dividend Per Share (DPS) x 4 = Indicated Dividend Per Share

$_______________ x 4 = $_______________ IDS

Yield

Indicated Dividend Per Share ÷ Share Price = Yield

$_______________ ÷ $_______________ = _______________ % Yield

Earnings Per Share (EPS)

Net Profit ÷ Total Shares Outstanding = Earnings Per Share

$_______________ ÷ _______________ shares = $_______________ EPS

Price-to-Earnings (P/E) Ratio

Share price ÷ Annual Earnings Per Share = P/E

$_______________ ÷ $_______________ = _______________ P/E

Payout ratio

Dividends Per Share ÷ Earnings Per Share = Payout Ratio

$_______________ ÷ $_______________ = _______________% Payout Ratio

Net Margin

Net Profit ÷ Total Revenues = Net Margin

$_______________ ÷ $_______________ = _______________% Net Margin

Return On Equity (ROE)

Net Annual Profit ÷ Average Annual Shareholder Equity = Return On Equity

$_______________ ÷ $_______________ = _______________% ROE

Quick Ratio

(Current Assets – Inventories) ÷ Current Liabilities = Quick Ratio

($______________- $______________ ) ÷ $______________ = ______________ Quick Ratio

Debt Covering Ratio

Operating Income ÷ Current Liabilities = Debt Covering Ratio

$_______________ ÷ $_______________ = _______________ Debt Covering Ratio

Debt-to-Equity Ratio

Total Liabilities ÷ Shareholders’ Equity = Debt-to-Equity Ratio

$_______________ ÷ $_______________ = _______________% Debt-to-Equity Ratio

Free Cash Flow

Net Cash from Operating Activities – Capital Expenditures = Free Cash Flow

$_______________ – $_______________ = $_______________ Free Cash Flow