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 based on the dividends that were paid in the past. It is a projection, or estimate, of future income potential based on the company's prior track record of paying dividends.

Key Takeaways

  • An indicated dividend is an estimate of the amount of dividends that will be paid in the next 12 months based on the company's prior dividend payments.
  • An indicated dividend may be based on the most recent dividend annualized, the prior year's dividends projected into the next year, or prior dividends adjusted from a growth or contraction factor.
  • Knowing the indicated dividend helps investors estimate their income stream, which allows them to create or rebalance their investment portfolio.

Understanding an Indicated Dividend

An indicated dividend, also called an indicated annual dividend (IAD), is the estimated amount of total dividends on a share of stock for the coming year. The indicated dividend is based on the assumption that the company will keep making payments equal to the most recent payment.

Put another way, an indicated dividend is the most recent quarterly dividend annualized.

If a company pays quarterly dividends, the indicated dividend for the next 12 months is the most recent quarterly dividend multiplied by four. If the dividend is monthly, multiply the dividend by 12. For semi-annual and annual dividends, multiply the most recent dividend by two or one, respectively.

An investor could also take the sum of dividends over the last 12 months and then project that amount forward. For example, if a company paid four dividends in the last 12 months, adding up those dividends indicates what dividends could be for next year.

If a company has a policy of consistently increasing or decreasing dividends, this could also be factored into the calculation. Assuming dividend growth into the future may lead to unmet expectations if the growth does not occur.

Regardless of the method used, an indicated dividend can't predict the future. It is an estimate of what the 12-month dividend payout may be but could differ significantly from what actually unfolds.

Why an Indicated Dividend Matters

An indicated dividend tells investors what annual cash return they may expect from dividends over the next year. Once an investor knows the IAD of a stock, they may then compare it with other stocks in order to make investment decisions. Or, they may compare the IAD with returns from other securities, such as bonds. Knowing the indicated dividend is useful when strategizing one’s investments or rebalancing a portfolio.

The indicated dividend is also used in calculating the dividend yield and payout ratio. For example, a payout ratio may be calculated by taking the stock’s IAD and dividing it by the trailing 12-month earnings per share (EPS).

Calculating an Indicated Dividend

The indicated dividend may be calculated using a number of methods as discussed above.

  1. A projected methodology that annualizes the most recent regular cash dividend.
  2. A historical methodology that assumes the most recent 12-month dividend amount will be paid in the next 12 months as well.
  3. 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 Inc. (AAPL) paid four dividends in 2019.

  • February: $0.73
  • May: $0.77
  • August: $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

In the case of Apple, discussed above, add together the 12 months' worth of dividend payments to get the indicated dividend for the following 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

In the case of Apple, the most recent dividend shown was $0.77. Over several 12-month periods in the past, Apple increased its dividend by roughly 10%. Between 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 stay 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 indicate a $0.8085 dividend ($0.77 x 1.05), or $3.234 per year.

An even more aggressive estimate is to assume a 10% growth, indicating a $0.847 quarterly dividend or $3.388 in yearly dividends.