How to use this calculator
- Name: any label you like. It only appears in the table and chart.
- Share price and annual dividend per share: today’s numbers from your broker or the company.
- Dividend growth: how fast you expect the dividend to rise each year.
- Payout ratio: dividends as a percentage of earnings, used to sort each stock into a band.
- Frequency: how often it pays. It doesn’t change the yearly figures.
Use two stocks, or add a third. Every number assumes you put the same $10,000 into each one and don’t reinvest.
The formula
Yield = Annual dividend ÷ Share price × 100
Income per $10,000 = $10,000 ÷ Share price × Annual dividend
Dividend in n years = Annual dividend × (1 + growth)n
Yield on cost after n years = Dividend in n years ÷ Share price × 100
Yield on cost is the future dividend measured against the price you’d pay today. It shows what your yield becomes if you buy now and the dividend grows as you expect. The share price after you buy doesn’t enter into it.
Worked example
The starting numbers compare three made-up stocks:
- Stock A: $50.00 price, $2.00 dividend growing 5% a year. Yield 4.00%, so $10,000 pays $400.00 now and $651.56 in 10 years.
- Stock B: $80.00 price, $1.60 dividend growing 10% a year. Only 2.00% today, $200.00 per $10,000, but $518.75 in 10 years: a yield on cost of 5.19%.
- Stock C: $25.00 price, $1.75 dividend growing 1% a year. Yield 7.00%: $700.00 now and $773.24 in 10 years. Its 85% payout ratio puts it in the “very high” band.
Stock C still pays the most after 10 years. Stock B grows fastest, though: if both rates held, B would pass C in about 15 years. Which one suits you depends on when you need the income.
High yield now or faster growth?
A high-yield stock pays you more from the first year, and that head start adds up: over the first ten years, Stock C pays far more in total than Stock B, even if B eventually passes it. A fast grower pays less at first and more later. If you need income soon, the early dollars count for more. If you’re decades away from needing it, growth has more time to work.
Growth rates are guesses. A company growing its dividend 10% a year today may not keep that up for a decade, and a slow grower may speed up. Try a few rates for each stock to see how sensitive the ranking is.
Reading the payout ratio
The payout ratio shows how much of a company’s earnings goes out as dividends. A low ratio leaves room to keep raising the dividend and to absorb a bad year. A ratio near or above 100% means there is little cushion, though some kinds of businesses normally pay out most of what they earn. The bands here describe the number; they don’t judge the company. The Payout Ratio Calculator explains the different ways to measure it, including for REITs.
What the comparison leaves out
Every column assumes its growth rate holds for ten straight years and that the share price you entered is what you pay. Real dividends grow unevenly, and some get cut. The comparison also ignores taxes and share price changes, so it shows income only, not total return. Treat the growth rate as the number to test: lower it for each stock and see whether the ranking changes.
Tip: compare stocks on the same basis. Use the same kind of dividend figure for each (the latest annual rate, not one stock’s trailing year against another’s forward rate), and leave out one-time special dividends.
To see how a single stock’s yield on cost develops, use the Yield on Cost Calculator. To include reinvesting and price growth, try the DRIP Calculator.