What is Indicated Dividend
Indicated dividend is the estimated amount of cash dividends that would be paid on a share of stock during the next-12 months if each dividend amount were the same as the most recent dividend. The indicated dividend is usually represented by the letter "e" in stock tables.
Breaking Down Indicated Dividend
Indicated dividend — also called 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 its most recent one for each quarter of the next year. Put another way, indicated dividend is the most recent quarterly dividend annualized, that is, multiplied by four. It also may be defined as the per-share amount that a firm pays in dividends each year.
Although indicated dividend is based on what the stock paid in the most recent quarter, the IAD rate cited in a stock table may reflect the dividend for the company's most recent quarterly, six-month, or annual period, as companies may declare dividend rates for a variety of time spans.
Why it Matters
Stock tables include the indicated dividend to tell investors what annual cash return they may expect from earnings payouts. Once an investor knows the IAD of a stock, he may then compare it with that of other stocks in order to make investment decisions, for example. Or, he may compare the IAD with returns from other securities, such as bonds. Knowing the indicated divided is useful when strategizing one’s investments or rebalancing a portfolio.
The indicated divided 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 trailing 12-month earnings per share (EPS).
Calculating Indicated Dividend
The indicated dividend may be calculated using 1) a projected methodology, which annualizes the most recent regular cash dividend; or 2) an historical methodology, which accumulates the regular cash dividends paid over the past-12 months. If a company has less than one year of dividend history, then the accumulated dividends are annualized. See sample calculations below.
Projected Methodology: IAD = (Dividend Payment Frequency) x (Most Recent Cash Distribution Amount)
ABC common stock had four cash distributions in the past-12 months:
- August 10, 2010 = $0.85
- November 10, 2010 = $0.75
- February 10, 2011 = $0.75
- May 10, 2011 = $0.85
- Payment Frequency = Quarterly (4)
- IAD = $0.85 x 4 = $3.40
Historical Methodology: IAD = (Sum of Cash Distributions in Past-12 Months / Number of Payments) x (Payment Frequency)
ABC mutual fund had three cash distributions in the past-12 months:
- December 6, 2010 = $0.292
- December 30, 2010 = $0.03
- May 6, 2011 = $0.143
- Payment Frequency = Semi-Annual (2)
- IAD = (0.292 + 0.03 + 0.143 / 3) x 2 = $0.31