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Dividend Calculator
What Is Dividend Yield?
Dividend yield is your financial compass for income investing – a powerful metric that reveals how much cash return you can expect relative to your investment.
This essential percentage shows the relationship between the annual dividend a company pays per share and its current market price, giving you immediate insight into the income-generating power of your investment.
Think of it as the “bang for your buck” in the dividend world – a higher yield means more dividend income for every dollar invested.
The Art of Calculating Dividend Yield
In a world of complex financial metrics, calculating dividend yield is refreshingly straightforward:
Dividend Yield (%) = Annual Dividend Per Share / Current Share Price × 100
For example, if a company trading at $50 pays annual dividends of $2 per share, its dividend yield is 4%.
Professional investors often annualise the most recent quarterly dividend by multiplying it by four – giving them a forward-looking estimate of expected yield.
Dividend Yield vs. Payout Ratio
These two metrics tell different but complementary stories about a company’s dividend policy:
Dividend Yield
Measures the income return on your investment based on the current share price.
Payout Ratio
Reveals what percentage of earnings the company distributes versus retains, offering insight into dividend sustainability and future growth potential.
The most reliable dividend investments typically feature:
- A moderate yield (3–5%)
- A sustainable payout ratio (40–60%)
- Consistent growth in both earnings and dividends
Dividend Yield Calculator
See the potential impact of dividend investing on your portfolio over time
Your Dividend Investment Analysis
Dividend
Yield
Initial Annual Income
Final Portfolio Value
Total Dividends Earned
Key Insights
Why Dividend Yield Matters
Passive Income Stream
Dividend yield is your window into how effectively your investments generate passive income. A consistent 3–5% yield can create substantial cash flow over time – without selling your assets.
Market Insight
Changes in dividend yield can reveal critical information about a company’s financial health. A rising yield driven by increasing dividends often signals strength, while a spike in yield caused by a falling share price may indicate trouble.
Comparison Tool
Dividend yield provides a standardised way to compare income potential across different investments – helping you allocate capital efficiently and build a diversified income portfolio.
Dividend Yield vs. Payout Ratio
Tale of Two Companies with Very Different Dividend Stories:
Company Alpha
Starts with a share price of $100 and a $2 dividend (2% yield). Thanks to strong earnings growth, Alpha increases its dividend by $0.50 annually. By year five, the dividend has doubled to $4 – representing a 4% yield on your original investment.
Company Beta
Also begins at $100 with a $2 dividend (2% yield), but keeps its dividend flat over five years. Meanwhile, its share price falls to $50. The result? A 4% yield – but only because the share value dropped, potentially flagging deeper issues.
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