Question: How to Calculate Dividend Yield?
Answer: Dividend yield is calculated by dividing the annual dividend per share by the current stock price, then multiplying by 100 to get a percentage.
For example, if a stock pays $2 annually and trades at $50, its yield is 4% ($2 ÷ $50 × 100). This metric helps investors compare income potential across stocks—but remember, unusually high yields may signal risks, and sustainable payouts matter more than yield alone.
Key Takeaways
✅ Dividend yield = Annual dividend / Share price, expressed as a percentage.
✅ 3–5% yields are common for stable, mature companies.
✅ Always research payout ratios and dividend history before investing.
What Is Dividend Yield?
Dividend yield measures how much cash flow you earn for every dollar invested in a stock. Think of it like the interest rate on a savings account, but for equities. If a stock pays $3 annually per share and trades at $100, its 3% yield means $3,000 yearly income on a $100,000 investment.
Two factors affect yield:
- Dividend amount (set by the company)
- Stock price (fluctuates in the market)
The Dividend Yield Formula
The dividend yield formula is straightforward:
Dividend Yield = (Annual Dividend Per Share / Current Share Price) × 100 Variables Explained:
- Annual Dividend Per Share: Total dividends paid over 12 months (e.g., $2.40 if paid $0.60 quarterly).
- Current Share Price: Market price when you calculate the yield.
Example Calculation
Let’s calculate the yield for Realty Income (O), a popular dividend stock:
- Annual Dividend: $3.00 (paid monthly at $0.25 per share)
- Share Price: $55.00
Dividend Yield = ($3.00 / $55.00) × 100 = 5.45% Yield Comparison Table:
| Stock | Annual Dividend | Share Price | Dividend Yield |
|---|---|---|---|
| Apple (AAPL) | $0.96 | $190 | 0.51% |
| AT&T (T) | $1.11 | $17 | 6.53% |
| Coca-Cola (KO) | $1.84 | $60 | 3.07% |
Note: Yields change as stock prices move.
Why Dividend Yield Matters
- Passive Income: Higher yields generate more cash flow (e.g., a 4% yield on $100k = $4,000/year).
- Stock Comparison: Helps evaluate income potential across sectors.
- Red Flag Warning: Yields above 8–10% may signal financial distress (e.g., unsustainable payouts).
Ideal Dividend Yield Range
| Sector | Typical Yield Range | Example Stocks |
|---|---|---|
| Tech | 0.5%–2% | Apple, Microsoft |
| Utilities | 3%–5% | Duke Energy, Southern Co |
| REITs | 4%–6% | Realty Income, Prologis |
Healthy Yield Benchmark: 2–6% for most stable companies.
Tools to Find Dividend Yields
FAQ:
What is a good dividend yield?
A “good” yield depends on your goals. 2–6% is typical for blue-chip stocks, but always assess sustainability.
Is dividend yield the same as dividend payout?
No. Yield is a percentage of the stock price. Payout is the cash amount per share (e.g., $0.50 quarterly).
How often is dividend yield paid?
Most U.S. stocks pay quarterly, but some (like REITs) pay monthly. The yield is always annualized.