Finding how much a company pays in total dividends is pretty easy if you know where to look. One way to calculate total dividends paid in any given period is to look at net income, and the change in retained earnings.
Net income = profits or losses earned a period of time.
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Retained earnings = Cumulative net income minus cumulative dividends paid to shareholders.
Therefore, logic follows that the amount paid out in dividends is equal to net income minus the change in retained earnings for any period of time. Confused? Don't be. I'll use a really friendly example so that you can calculate this on your own.
Calculating Costco's dividends in 2014In 2014, Costco reported net income of $2.058 billion on its income statement. On its balance sheet, it reported having retained earnings of $6.283 billion at the end of 2013, and $7.458 billion at the end of 2014. These are the three numbers we need to calculate how much it paid in dividends in 2014.
The first step is to figure out how much of Costco's earnings it retained in 2014. We can find this by taking retained earnings at the end of 2014, and subtracting retained earnings at the end of 2013.
This figure ($1.175 billion) shows us how much of Costco's net income was retained by the company during the fiscal 2014 year. By definition, this is how much of its earnings Costco didn't pay out in a dividend.
To find out how much was paid out in dividends, we simply have to find the difference between what Costco earned, and what it retained. A dollar earned, but not retained, is obviously a dollar paid out.
Thus, we take net income of $2.058 billion and subtract the change in retained earnings over the past year, or $1.175 billion. In doing so, we arrive at $0.883 billion. This figure is how much Costco paid out in dividends to its shareholders using net income and retained earnings.
And with that, we're done! We've found that Costco paid $0.883 billion in dividends in 2014 using retained earnings and net income.
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The article How to Calculate Dividends Paid out with Retained Earnings & Net Income originally appeared on Fool.com.
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