Dividend yield: what it means and how to work it out

The formula

Dividend yield = Yearly dividend per share ÷ Share price × 100

The yearly dividend is what one share pays over a year. If the company pays every quarter, multiply one payment by four; if it pays monthly, by twelve.

Example

A stock trades at $50.00 and pays $0.50 a quarter. That is $0.50 × 4 = $2.00 a year, and $2.00 ÷ $50.00 = 4.00%.

Why the yield changes when the dividend doesn’t

The price is in the bottom of the fraction, so the yield moves opposite to the price. If the same stock falls to $40.00 and still pays $2.00, the yield rises to 5.00%. Nothing about the dividend changed. A high yield can mean a generous dividend, or a price that fell because investors expect the dividend to be cut; the yield alone doesn’t tell you which.

Trailing and forward yield

Quote pages count the dividend in one of two ways. Trailing yield uses what was actually paid over the last 12 months: here $0.48 + $0.48 + $0.50 + $0.50 = $1.96, a 3.92% yield at $50.00. Forward yield takes the latest payment times the payments in a year: $0.50 × 4 = $2.00, or 4.00%. After a dividend raise, forward yield is the higher of the two; after a cut, the lower.

Yield and your income

Yield turns into dollars once you know how much you invest: $10,000.00 at a 4.00% yield pays about $400.00 a year before tax. The Dividend Calculator does that for any amount or share count, and the Yield on Cost Calculator shows the yield on the price you paid instead of today’s.