Dividend Yield Calculator

Created by Wei Bin Loo
Reviewed by Dominik Czernia, PhD candidate and Jack Bowater
Last updated: Apr 06, 2022

With this dividend yield calculator, we aim to help you to calculate the dividend yield of your stock investments. The dividend yield is deemed to be the most important metric to analyze dividends. Hence, before you finalize your investment decision, you need to make sure you understand the meaning of the dividend yield.

We have prepared this document to help you understand what dividend yield is and how to calculate dividend yield. We will also demonstrate some examples to help you understand what a good dividend yield is.

What is the dividend yield? Dividend yield definition

The dividend yield definition says it's the ratio of the annual dividends paid by a company over its current stock price. It tells you how much return you are getting as dividends by investing in the stock. Being one of the two main sources of returns for investing in the stock market, it would be unwise for you to neglect the returns from dividends.

In general, only mature companies pay dividends. This is because the number of profitable growth opportunities for them is limited. It will generate more value for the shareholders if they pay out their net income as dividends. On the other hand, growth companies might pay out minimal or even zero dividends as they can create more value by reinvesting the earnings back into the business.

Now when we answered the question what does the dividend yield mean, let's look at some examples.

How to calculate the dividend yield? The dividend yield formula

To understand how to find the dividend yield, let's take Company Alpha's stock as an example. It has the following information:

  • Name: Company Alpha;
  • Dividend per period: $2.50;
  • Dividend frequency: Quarterly; and
  • Share price: $120.

The dividend yield calculator then follows these steps:

  1. Calculate the annual dividends

You can find the annual dividends using the formula below:

annual dividends = dividends per period * dividend frequency

For our dividend yield example, the dividend frequency is equivalent to 4 since Company Alpha pays out dividends quarterly. Hence, its annual dividend is $2.50 * 4 = $10.00.

  1. Determine the share price

The share price can be found on most financial websites such as Yahoo! Finance and the Financial Times. You can also simply use a search engine to find it.

  1. Calculate the dividend yield

The last step is to calculate the dividend yield using the dividend yield formula below:

dividend yield = annual dividends / share price

Hence, for Company Alpha, the dividend yield is $10 / $120 = 8.33%.

That ends our dividend yield example using the stock of Company Alpha. If you need to make more quick and reliable estimations, you can always use our dividend yield calculator!

How should you interpret the result from the dividend yield calculator?

Now that we understand what does dividend yield means and how to calculate it, it's time for us to understand how to interpret this powerful metric:

  • Dividend investors like high dividend yield stocks for good reasons. Under normal circumstances, a high dividend yield means that you are getting a higher rate of return from your investments since dividend yield reports how much return you are getting on your investment.

  • However, investing in high dividend yield stocks also has its downsides. High dividend yield stocks normally can't sustain the high dividends that they are paying out. Hence, before you make your investment decision, please make sure you check the dividend payout ratio or the retention ratio of the stock in question.

FAQ

What is a good dividend yield?

Generally speaking, the higher the dividend yield, the better as it means the potential return from dividends is higher relative to the price you pay for the investment.

However, a dividend yield that is too high might be unsustainable. Hence, it is important to check the payout ratio before you make your decision.

Can dividend yield be negative?

No, dividend yield cannot be negative. Since the annual dividends and share price can't be negative, this means the dividend yield cannot be negative as well.

What is a dividend?

A dividend can be understood as a payment made by a company to its shareholders as a form of return for investing in the business. The dividends are usually sourced from the net income, so the more profitable the company, the more sustainable its dividends are.

What is dividend investing?

Dividend investing is one of the famous investing strategies that focuses on getting dividends as returns instead of capital gains. This strategy is usually less risky and incurs fewer taxes.

How do I find dividend yield?

You can calculate the dividend yield in 4 steps:

  1. Calculate the annual dividends.
  2. If your dividend frequency isn't annual, you need to multiply the dividend per period by the number of payments in a year to find the annual dividends.
  3. Determine the share price.
  4. Divide the annual dividends by the share price to get the dividend yield.
Wei Bin Loo
Annual dividends
Dividends per period
$
Dividend frequency
Annually
Annual dividends
$
Dividend yield
Share price
$
Dividend yield
%
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