Dividend yield

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The dividend yield or dividend-price ratio of a share is the dividend per share, divided by the price per share.[1] It is also a company's total annual dividend payments divided by its market capitalization, assuming the number of shares is constant. It is often expressed as a percentage.


Its reciprocal is the Price/Dividend ratio.

Preferred share dividend yield[edit]

Dividend payments on preferred stocks ("preference shares" in the UK) are set out in the prospectus. The name of the preferred share will typically include its nominal yield: for example, a 6% preferred share. However, the dividend may under some circumstances be passed or reduced. The current yield is the ratio of the annual dividend to the current market price, which will vary.

Common share dividend yield[edit]

Unlike preferred stock, there is no stipulated dividend for common stock ("ordinary shares" in the UK). Instead, dividends paid to holders of common stock are set by management, usually with regard to the company's earnings. There is no guarantee that future dividends will match past dividends or even be paid at all. The historic yield is calculated using the following formula:

\mbox{Current Dividend Yield}=\frac{\mbox{Most Recent Full-Year Dividend}}{\mbox{Current Share Price}}

For example, take a company which paid dividends totaling $1 per share last year and whose shares currently sell for $20. Its dividend yield would be calculated as follows: 
 \mbox{Current Dividend Yield} & = & \frac{\mbox{Most Recent Full-Year Dividend}}{\mbox{Current Share Price}}     \\
        & = & \frac{$1}{$20} \\
        & = & 0.05 \\
        & = & 5% \\

The yield for the S&P 500 is reported this way. US newspaper and web listings of common stocks apply a somewhat different calculation: they report the latest quarterly dividend multiplied by 4 divided by the current price. Others try to estimate the next year's dividend and use it to derive a prospective dividend yield. Such a scheme is used for the calculation of the FTSE UK Dividend+ Index[1]. Estimates of future dividend yields are by definition uncertain.

Trailing dividend yield[edit]

Trailing dividend yield gives the amount that was actually paid over some period. One rule is to take the most recent quarterly payment and multiply it by four. This can be "trailing twelve months" to be consistent with earnings.

Forward dividend yield[edit]

Forward dividend yield is some estimation of the future yield of a stock. This may be an analyst estimate, or just using the company's guidance. For example, if a company has announced a dividend increase, even though nothing has been paid, this may be assumed to be the payment for the next year. Similarly, if a company has said that it will suspend its dividend, the yield would be assumed to be zero.

The calculation is done by taking the first dividend payment and annualizing it and then divide that number by the current stock price. In other words if the first quarterly dividend was $0.04 and the current stock price was $10.00 the forward dividend yield would be (.04*4)/10= 1.6%.

The trailing dividend yield is done in reverse by taking the last dividend annualized divided by the current stock price.

Related measures[edit]

The reciprocal of the dividend yield is the Price/Dividend ratio. The dividend yield is related to the earnings yield via:




The importance of the dividend yield in determining investment strength is still a debated topic. The persistent historic low in the Dow Jones dividend yield during the early 21st century is considered by some investors as indicative that the market is still overvalued.[citation needed]

Related reference[edit]

Dow Industrials[edit]

The dividend yield of the Dow Jones Industrial Average, which is obtained from the annual dividends of all 30 companies in the average divided by their cumulative stock price, has also been considered to be an important indicator of the strength of the U.S. stock market. Historically, the Dow Jones dividend yield has fluctuated between 3.2% (during market highs, for example in 1929) and around 8.0% (during typical market lows). The highest ever Dow Jones dividend yield occurred in 1932 when it yielded over 15%, which was years after the famous stock market collapse of 1929, when it yielded only 3.1%.


The Dogs of the Dow is a popular investment strategy which invests in the ten highest dividend yield Dow stocks at the beginning of each calendar year.

S&P 500[edit]


Yield on cost[edit]

Yield is sometimes computed based on the amount paid for a stock.[3] For example, if stock X was bought for $20 per share (in ancient times), and it split 2:1 three times, and it is now trading for $50, and it pays a dividend of $2 per year, then the yield on cost is 80%. The yield with the current price is 4%.

See also[edit]

External Links[edit]