In short: Dividend yield is a stock's annual dividend per share divided by its current share price, expressed as a percentage. It tells you how much cash income the investment pays each year relative to what it costs to buy today.
The formula
Dividend yield
Dividend yield (%) = Annual dividend per share ÷ Share price × 100
Annual dividend from a payment
Annual dividend per share = Dividend per payment × Payments per year
Income from a yield
Annual dividend income = Investment value × Dividend yield
How dividend yield affects your income
Yield is the bridge between the money you invest and the cash it produces. At a 3% yield, every $1,000 invested produces about $30 a year in dividends, before tax, as long as the dividend stays the same.
Because yield is calculated from today's price, it changes every time the share price moves, even if the company never changes its dividend. A falling price pushes the yield up; a rising price pushes it down. Your actual income depends on the dividend per share and how many shares you own, not on the yield figure itself.
Trailing yield vs. forward yield
Financial websites usually show one of two versions. Trailing yield uses the dividends actually paid over the past 12 months. Forward yield takes the most recent dividend payment and multiplies it by the number of payments per year, assuming that rate continues.
Forward yield reflects recent dividend increases or cuts sooner, but it is an assumption about the future. Trailing yield is based on real payments but can lag behind changes. When you enter a yield in the calculator, check which version your source uses.
Where to find the inputs
- Your brokerage account usually lists the current dividend per share and yield for each holding.
- A company's investor relations website typically publishes its dividend history and declared payment amounts.
- Fund providers list distribution history and distribution yield in fund documents. Fund yields can be calculated in different ways, so read the definition.
Using yield in the Dividend Calculator
The calculator lets you enter either a yield or a dollar dividend per share. If you enter a yield, it converts it to dollars using the share price you provide: dividend per share = yield × price. From then on it tracks the dollar dividend, which is how companies actually declare dividends.
Worked examples
Hypothetical example: calculating yield from a quarterly dividend
- A stock trades at $80 and pays $0.60 per share each quarter.
- Annual dividend per share = $0.60 × 4 = $2.40.
- Dividend yield = $2.40 ÷ $80 × 100 = 3.0%.
- A $10,000 investment would produce about $10,000 × 3.0% = $300 a year before tax.
Result: Yield: 3.0%. Estimated annual income on $10,000: $300.
Hypothetical example: the same dividend after a price drop
- The share price falls from $80 to $60. The dividend stays at $2.40 a year.
- New yield = $2.40 ÷ $60 × 100 = 4.0%.
- Someone who already owned the shares still receives $2.40 per share. Only a new buyer gets the higher yield on their purchase price.
Result: The yield rose from 3.0% to 4.0% only because the price fell. Income per share did not change.
Examples are hypothetical and use round numbers for illustration. They do not describe any real security.
Common misconceptions
- “A higher yield is always better.” An unusually high yield can mean the market expects the dividend to be cut, or that the share price has fallen sharply. Yield says nothing on its own about whether the payment is sustainable.
- “The yield I see is what I will earn.” Yield is a snapshot based on today's price and recent dividends. Companies can raise, lower, suspend, or eliminate dividends at any time.
- “Dividend yield is the same as total return.” Total return also includes changes in the share price. A stock can pay a 4% yield and still lose value overall if its price falls.
Run your own numbers with these assumptions.
Use the Dividend CalculatorFrequently asked questions
What is a good dividend yield?
There is no single good number. Typical yields vary by industry, interest rates, and market conditions. Compare a yield with similar companies and with the company's own history, and look at whether earnings and cash flow support the payment.
Why did my stock's yield change when the dividend didn't?
Yield is the dividend divided by the current price. When the share price moves, the yield moves the opposite way, even if the dividend stays the same.
Can dividend yield be negative?
No. A company either pays a dividend or it doesn't. The lowest possible yield is 0%.
Sources
Next step
Continue with dividend growth rate, or plug what you've learned into the dividend calculator and compare a few scenarios.