StocksGlossary
Dividend yield
Dividend yield is a stock's yearly dividend divided by its current price. Plain-English definition, the formula, a worked example and a common trap.
Quick answer
Dividend yield is a stock's yearly dividend divided by its current share price, shown as a percentage. A $1.92 yearly dividend on a $64 share is a 3% yield. Because the price is in the denominator, the yield rises when the price falls.
What does dividend yield mean?#
FINRA explains that dividend yield is calculated by dividing the yearly dividend rate by the current price[1]. A dividend is a portion of a company's profit paid to shareholders[2]. The yield turns that payment into a percentage, so you can compare the income from stocks with different share prices.
FINRA also notes that dividend yield is added to capital gains (or losses) to determine the total return of a stock or fund, and that not all stocks and funds pay dividends[1]. Yield is only the income part of the picture.
How do you calculate it?#
Worked example
A $0.48 quarterly dividend
A hypothetical company pays $0.48 a share each quarter, or $1.92 a year. At a $64 share price the yield is 3.00%. If you invested $10,000 at that price you would hold 156.25 shares and receive $300 a year, before taxes, as long as the dividend stays the same. If the price changes while the dividend does not, the yield changes:
| Share price | Yearly dividend | Dividend yield |
|---|---|---|
| Share price $64 | $1.92 | 3.00% |
| Share price $48 | $1.92 | 4.00% |
| Share price $32 | $1.92 | 6.00% |
Figures computed in code from the stated inputs; rounded to the nearest cent or tenth.
Why can a high dividend yield be a warning?#
In the example, the yield doubles from 3% to 6% only because the price halved. A falling price can reflect worries about the business, and the dividend itself is not fixed: FINRA notes that a company can cut the dividend or eliminate it altogether[3]. A yield calculated from last year's payments can therefore overstate what you will actually receive.
For the dates that decide who gets paid and what reinvesting does, read how dividends work. Related terms: yield for bonds and capital gain for the price part of a return. To see how dividends fit into owning shares, start with what a stock is.
Sources
Numbers in brackets in the text point here. Grade A = primary source (regulator, statistics agency, law or official document).
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