How do I figure out how to calculate dividends? Here is the question.
Sandpiper Company has 20,000 shares o 1% cumulative preferred stock of $100 par and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends:
Year 1 $10,000
Year 2 45,000
Year 3 80,000

Determine the dividends per share for preferred and common stock for each year.
Can you shoe me the steps on how to calculate the dividends?

With preferred stock, the quoted percentage, along with the par amount, tells you the dollars-per-share amount of dividends to which the preferred is entitled. In your case it's 1%, and $100 par = ? Dividends per preferred share.

After figuring the per-share dividend amount, just multiply that by the total number of outstanding shares (20K, in your case) to get the total dividend payable to the preferred.

The "cumulative" feature means that if the preferred doesn't receive its full dividend payout in any particular year, the shortfall is made up in the succeeding years first, before the common receives any dividend.

Finally, once you know the payout to the preferred for each of your three years, the rest of the total payout goes to the common stock.

Give that a try, and post back with your results.

okay so how do I work it is 10,000 x 1% x 100? And 45,000 x 1% x100? And 80,000 x 1% x 100?

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Originally Posted by Barbarita

okay so how do I work it is 10,000 x 1% x 100? and 45,000 x 1% x100? and 80,000 x 1% x 100?

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No. What you're trying to do is take 1% of the total dividends paid, and then multiply that by 100, which doesn't have any meaning. You also want to figure out the annual preferred dividend before applying it to any particular year.

The 1% that's on the description of the preferred stock means 1% of par. And par is $100. So what is 1% of par? That's the required dividend per one share. Once you have that, you then need to figure out what the total amount would be based on the number of preferred shares you have. (20K) That's not any different than saying candy bars are $.90 each and you bought 20 of them, and how much total did you spend. Only this is an amount per share of stock and you have 20K shares of stock. So how much is that total?

All of that is your first step, just to get the total amount of dividends that should be going to the preferred shareholders each year. That number remains the same throughout. (They might not actually have enough to pay that amount, but all the same, you must figure out that amount first.)

So get that figured out first.