Indicated Dividend
What Is an Indicated Dividend?
An indicated dividend is the estimated amount of cash dividends that will be paid on a share of stock during the next 12 months in light of the dividends that were paid in the past. It is a projection, or estimate, of future income potential in view of the company's prior history of paying dividends.
Grasping an Indicated Dividend
An indicated dividend, likewise called an indicated annual dividend (IAD), is the estimated amount of total dividends on a share of stock for the approaching year. The indicated dividend depends on the assumption that the company will keep making payments equivalent to the latest payment.
Put another way, an indicated dividend is the latest quarterly dividend annualized.
On the off chance that a company pays quarterly dividends, the indicated dividend for the next 12 months is the latest quarterly dividend increased by four. On the off chance that the dividend is month to month, duplicate the dividend by 12. For semi-annual and annual dividends, increase the latest dividend by two or one, individually.
An investor could likewise take the sum of dividends throughout the course of recent months and afterward project that amount forward. For instance, on the off chance that a company paid four dividends in the past 12 months, adding up those dividends demonstrates what dividends could be for next year.
On the off chance that a company has a policy of reliably expanding or decreasing dividends, this could likewise be factored into the calculation. Assuming dividend growth into the future might lead to neglected expectations in the event that the growth doesn't happen.
No matter what the method utilized, an indicated dividend can't foresee what's to come. It is an estimate of what the year dividend payout might be however could vary fundamentally from what really unfurls.
Why an Indicated Dividend Matters
An indicated dividend lets investors know what annual cash return they might anticipate from dividends over the course of the next year. When an investor knows the IAD of a stock, they may then contrast it and different stocks to settle on investment choices. Or on the other hand, they might contrast the IAD and returns from different securities, like bonds. Realizing the indicated dividend is valuable when planning one's investments or rebalancing a portfolio.
The indicated dividend is likewise utilized in computing the dividend yield and payout ratio. For instance, a payout ratio might be calculated by taking the stock's IAD and partitioning it by the trailing year earnings per share (EPS).
Computing an Indicated Dividend
The indicated dividend might be calculated involving a number of methods as examined previously.
- A projected methodology that annualizes the latest normal cash dividend.
- A historical methodology that assumes the latest year dividend amount will be paid in the next 12 months too.
- A projected methodology where growth or contraction in recent dividends is expected for the next 12-months.
Projected Methodology
Indicated Dividend = Dividend Payment Frequency x Most Recent Cash Distribution Amount
Apple (AAPL) paid four dividends in 2019:
- February: $0.73
- May: $0.77
- Admirable: $0.77
- November: $0.77
- Payment Frequency = Quarterly (4)
Indicated Dividend = $0.77 x 4 = $3.08
Historical Methodology
Indicated Dividend = Sum of Cash Distributions in the Past 12 Months
On account of Apple, examined above, include the 12 months' worth of dividend payments to get the indicated dividend for the accompanying 12 months.
Indicated Dividend = $0.73 + $0.77 + $0.77 + $0.77 = $3.04
Projected Methodology With Growth/Contraction
Indicated Dividend = Most Recent Dividend x Growth or Contraction Average
On account of Apple, the latest dividend shown was $0.77. North of several year periods in the past, Apple increased its dividend by generally 10%. Somewhere in the range of 2018 and 2019 the dividend increased from $0.73 per quarter to $0.77, an increase of 5%.
A conservative estimate is to assume the dividend will remain at $0.77 per quarter or $3.08 for the next 12 months.
A more aggressive estimate is to assume a 5% growth, which would demonstrate a $0.8085 dividend ($0.77 x 1.05), or $3.234 each year.
An even more aggressive estimate is to assume a 10% growth, showing a $0.847 quarterly dividend or $3.388 in yearly dividends.
Features
- An indicated dividend might be founded on the latest dividend annualized, the prior year's dividends projected into the next year, or prior dividends adjusted from a growth or contraction factor.
- Realizing the indicated dividend assists investors with assessing their income stream, which permits them to make or rebalance their investment portfolio.
- An indicated dividend is an estimate of the amount of dividends that will be paid in the next 12 months in light of the company's prior dividend payments.
