On this page is a dividend yield calculator. Enter the annual dividends paid by a security and the security price to compute its dividend yield.
Dividend Yield Calculator
What is the dividend yield?
The dividend yield is the annual percentage of the cost of an asset paid out to its holders in dividends.
The dividend yield may be the trailing dividend yield using the previous 12 months of dividends, projected dividend yield using company, analyst, or personal estimates, or a run-rate dividend yield of some multiple of a quarter's payout. Sometimes, historical dividend growth is applied to the run rate to estimate the following year's dividends.
Dividend yield and expected growth is also an input to the dividend discount model. Dividends are an important aspect of total investment returns. The ETF return calculator and stock total return calculator calculate a return if you can constantly reinvested your dividends into a security.
Although rarely used, the inverse of the dividend yield is the price to dividend ratio (sometimes called the dividend payback period).
Dividends aren't the only way that a company can reward shareholders. It can also perform buybacks, which both directly pay off a current shareholder (the share seller), as well as leave all remaining shareholders with a higher percentage ownership of the company.
Between reinvesting dividends and investing in a company which buys back shares, it's possible to compound the value of an investment immensely over time. We call the buyback's effect the buyback yield, while both the dividend yield and buyback yield together are the shareholder yield.
Dividend Yield Formula
The dividend yield formula is:
dividend\ yield=\frac{annual\ dividend}{asset\ price}Where:
- Dividend - the annual amount of dividends paid per share by a security.
- Asset Price - the total price to purchase one share of a security.
Limitations on Dividend Yield
Dividend yield is a relatively robust measure. Companies that pay scheduled dividends tend not to cut those payouts back except in extreme scenarios, and reliable dividend payers attract shareholders who like that property of a security. Unfortunately, dividend payers tend to be beaten down more than might otherwise be fair when dividends are cut – due to this shareholder base.
Of course, that is a downside. Although many dividend payers are quite mature companies, sometimes the company has better opportunities to find a return on investment by reinvesting its earnings, buying back shares, or acquiring other companies instead of paying out to shareholders. Measuring a company's ROE or Return on Equity, only the amount of reinvested earnings will go to growth – money spent on dividends (and buybacks or acquisitions) will not contribute to organic growth.
And it's doubly bad if a company is undergoing a liquidity crunch and can't avoid cutting dividends. A dividend cut means a larger-than-usual drop in share price on top of the current liquidity crisis, so many managements will wait too long to cut the dividends – or, at least, longer than warranted.
Also, the dividend yield is generally computed pre-tax – or gross, from the investor side. Some companies, such as REITs (Real Estate Investment Trusts) and BDCs (Business Development Corporations) in the United States and many other countries, may pay dividends pre-tax, but their investors may be paying a more significant rate of tax on the yield. Other companies pay dividends post-corporate tax, and investors may hold the stocks in non-tax-advantaged accounts, paying a double tax. So, always compute the tax-equivalent yield of any investment – or, if you have space in tax-free accounts, carefully allocate your assets.
