Calculate Your Stock Return: Dividends and Price Changes

Let’s talk about how you can figure out exactly how much money you’ve made or lost on a stock investment over time. It’s not just about whether the stock price went up or down. There’s another important piece to the puzzle: dividends.

Think of it like this: imagine you own a little lemonade stand. You make money in two main ways. First, you sell lemonade. That’s like dividends from a stock. Dividends are payments a company makes to its shareholders, a share of the profits, essentially rewarding you for owning a piece of the company. Not every company pays dividends, just like not every small business gives out profit sharing, but many established, profitable companies do.

The second way you make money with your lemonade stand is if you decide to sell the whole stand later on for more money than you originally paid for it. This is similar to the stock price changing. If you buy a stock at one price and then later sell it at a higher price, that price increase is another part of your return. Conversely, if you sell it for less than you paid, you’ve experienced a loss in value.

To calculate your total dollar return on a stock, you need to consider both of these sources of potential profit: the dividends you received and the change in the stock price. Let’s break each of these down.

First, let’s think about the dividends. If you own shares of a company that pays dividends, you’ll typically receive regular payments, maybe quarterly, directly into your brokerage account. To figure out your total dividend return, you simply add up all the dividend payments you received from that stock during the specific period you are interested in, say, over the last year. For example, if you owned 10 shares of a company and they paid out a dollar dividend per share each quarter for a year, you would have received a total of 40 dollars in dividends: four quarters times one dollar per share times ten shares.

Next, consider the price change. To calculate the dollar return from the price change, you need to know two things: the price you originally paid for the stock and the price you sold it for, or the current price if you are calculating your return up to today and still hold the stock. Let’s say you bought one share of a company for 100 dollars. If you later sold that share for 120 dollars, your price change return is simply the selling price minus the purchase price, which in this case is 120 dollars minus 100 dollars, equaling a 20 dollar gain. This gain is often called a capital gain. If, instead, you sold it for 90 dollars, then you have a 10 dollar loss, calculated as 90 dollars minus 100 dollars, resulting in negative 10 dollars, which is a capital loss.

Now, to get the total dollar return, you simply combine these two amounts. You add the total dollar amount of dividends you received to the dollar amount of the price change. Using our previous example, if you bought the stock for 100 dollars, received 5 dollars in dividends over the year, and then sold the stock for 120 dollars, your total dollar return would be the 5 dollars in dividends plus the 20 dollar price increase, for a total of 25 dollars. This is your overall profit in dollar terms from this stock investment over that period.

It’s important to remember that this is the dollar return. Sometimes people also talk about the percentage return, which shows you your return relative to your initial investment. To get the percentage return, you would divide your total dollar return by your initial investment and then multiply by 100. But for now, we’re focusing on the total dollar return, which is simply the sum of all dividends received plus the change in the stock’s price over the period you are looking at. Understanding this calculation is crucial for anyone looking to track their stock market investments and see the real picture of how their money is performing.