 Personal Finance Practice Problem using OneNote. Dividend Income Estimation. Prepare to get financially fit by practicing personal finance. You're not required to, but if you have access to OneNote, would like to follow along. We're in the icon left-hand side in the Practice Problems tab in the 1210 Dividend Income Estimation tab. Also, take a look at the Immersive Reader Tool. The practice problems are typically in the text area too. Same name, same number, but with transcripts, transcripts that can be translated into multiple languages, either listened to or read in them. Remember that Dividend Income is income from investments in stocks, stocks representing ownership of corporations, corporations being separate legal entities where the ownership is broken out into standardized units of stocks. We're typically thinking about those corporations that are publicly traded when we're thinking about our normal kinds of investments. That means they have chosen to be traded on public exchanges. The dividends of a corporation represent the distribution of the earnings of the corporation to the shareholders, the owners in the form of dividends. They are similar to draws for a sole proprietorship or a partnership. But if you're in, say, a partnership, each partner may then determine how much they want to draw out of the income that they have basically generated or the income allocated to them. Whereas in a corporation, we can't have one stock getting different dividends than another stock because that would make the stocks not the same in nature. Therefore, the dividend policy has to be given an aggregate of all the stocks in essence and it's going to be then determined by the board of directors and the management determining how the dividends will be distributed. Also, remember that dividends is only one component of the kind of income, the kind of return we want from the investments in stocks. We want the dividends, the actual money that's coming back to us and or growth in the value of the stock because of course we can sell the stock as well. Now, when the company gives out dividends, they may choose, you know, different dividend strategies in terms of when they're going to be giving the dividend. They might give the dividends out quarterly, for example, they may give the dividends out yearly, quarterly is fairly common. Most of the time, the dividend strategies that a company wants is to increase the dividends over time because that looks good, looks healthy. They don't typically like to decrease the dividends, but they might also have other strategies tying their dividends to the amount of their earnings, for example. So a quick example of dividends going out, we might say that we have shares of 225, the quarterly dividend per share. So they're going to give the dividend on a per share basis. That's the beauty of the stocks is that we can break them out into these standardized units and break out the dividends that are going out on a per share basis. If we own 225 shares and they're given out 60 cents per share, then that means that we've got the shares of 225, the quarterly dividend. They're given out 60 cents on a quarterly basis times the number of shares that we have 225 would mean that we would get that multiplying out to 225 times the 0.6 or the 135. If we want to calculate the yearly dividend, which of course is quite common because oftentimes when we're doing analysis types of procedures comparing the dividend payout, for example, from this company to another company, for example, we often do that on a yearly basis. That's going to be the general timeframe, the default timeframe that we kind of work on. So if I had a quarterly dividend and I'm getting 135, then four quarters in a year, that would mean we'd have the 540 on the yearly dividends. Now, as we go forward with the dividend policies, we might make different assumptions to try to value the stock to try to predict what's going to happen in the future. For example, we might predict they have stable dividends if the dividends haven't changed throughout the year. If the dividends do change throughout the year, then the question is what what are the dividends going to do? Oftentimes, the question will be what are the dividends going to do going forward because we're often valuing the stock at this point forward. And again, the general trend would be that most companies would like their dividends to go up. They don't like to retract the dividends, make them go down because that's a bad signal to the market. However, they might have some other policies that tie the dividends again to like the earnings, for example, so that so that you can have an idea of what's going to happen with the relation to the earnings that are taking place. So we'll do some more calculation on using dividends in future presentations.