How to Calculate a Stock’s Dividend Yield

Dividends are the expected earnings of an investor after he or she purchases a certain number of shares in a company. As a company goes public, it floats the shares on the stock exchange, inviting potential clients to invest in the business. As the company grows or makes profit in the process, it is liable to return a portion of the earnings back to the shareholders.

For an investor, the dividend yield is an essential measurement tool to calculate how much a company pays out in dividends each year, when compared to the price of each share, i.e. how much cash you are earning for each dollar of investment. The ratio in simple terms depicts whether investing in a particular stock is wise or not.

Instructions

  • 1

    The formula to calculate Dividend yield – assuming no capital gains – is:

    Annual Dividends per Share / Price per Share

    It can further be manipulated to compute either Annual Dividends or Price of the share.

  • 2

    We can assume that you know the percentage dividend on your invested stock through the company’s prospectus, which stands at 5%. Moreover you know that the issued price of each stock was $30. Assuming that there were no capital gains, you need to simply multiply the dividend of 5 percent with the price of each stock.

    30 x 0.05= $1.5 is your annual dividend per share.

  • 3

    To reverse the procedure, if the company declared annual dividend share of $1.5, you can easily compute that the dividend yield would be 5 percent.

  • 4

    Now you won’t be having just one stock up your sleeves as you would want maximum returns. Assuming that you have 1000 shares of a company, then you will be getting 1.5 x 1000= $1500 in annual dividends.

    With most companies paying dividends on a quarterly basis, you need to divide this value by 4 to compute quarterly earnings, which in this case will be $1500/ 4= $375

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