How to Calculate Dividend Yield: A Step-by-Step Guide

What dividend yield is

Dividend yield is the annual dividend divided by the share price, times 100. A $2.00 dividend on a $50.00 share is a 4.00% yield. Yield on cost is the same dividend divided by what you paid instead of today's price — the $2.00 dividend on a $40.00 cost basis is a 5.00% yield on cost. The yield tells you what the stock pays now; the yield on cost tells you what it pays on your money.

Step 1: Divide the dividend by the price

The formula is yield = annual dividend per share ÷ share price × 100. On a $50.00 share paying $2.00 a year, the yield is $2.00 ÷ $50.00 × 100 = 4.00%. On a $100.00 share paying the same $2.00, the yield is only 2.00%: the price doubled, so the yield halved, even though the income is unchanged. On a $50.00 share paying $4.00, the yield is 8.00%.

Step 2: Work out the income — annual, monthly, quarterly

Multiply the dividend by the shares you own. With 100 shares paying $2.00 each, the annual income is $2.00 × 100 = $200.00. Monthly income is the annual income divided by 12: $200.00 ÷ 12 = $16.67. Quarterly income is the annual income divided by 4: $200.00 ÷ 4 = $50.00. With 500 shares the annual income is $1,000.00, the monthly income is $83.33 and the quarterly income is $250.00. The yield never changes with the share count — 100 shares and 500 shares both pay 4.00% — but the income scales with it. With 0 shares the income is $0.00.

Step 3: Work out the yield on cost

Divide the same dividend by what you paid per share. On a $40.00 cost basis the $2.00 dividend is $2.00 ÷ $40.00 × 100 = 5.00% — higher than the 4.00% headline yield, because you bought below today's $50.00 price. On a $60.00 cost basis it is only 3.33%, and the position is -$1,000.00 underwater, a gain of -16.67%. The yield on cost never changes when the price moves — it is fixed the day you buy — which is why long-term holders quote it. With a $0.00 cost basis the yield on cost is —: dividing by zero has no answer.

Step 4: Project the growth

Compound the dividend: year-Y dividend = dividend × (1 + growth ÷ 100)^Y. At 5% growth the $2.00 dividend becomes $2.55 in five years (exact 2.5526), the annual income becomes $255.26 and the yield becomes 5.11% (exact 5.1051%). At 10% growth the year-5 dividend is $3.22 and the income is $322.10. Over 10 years at 5% the dividend reaches $3.26 and the income $325.78. With no growth the year-5 dividend is still $2.00 and the income is still $200.00. Cut 10% a year and the year-5 dividend falls to $1.18 and the income to $118.10. The dividend doubles in 14.21 years at 5% growth (exact 14.2067).

The worked example

One hundred shares, $50.00 a share, $2.00 dividend, $40.00 cost basis, 5% growth, 5 years. The yield is 4.00%; the annual income is $200.00, the monthly income is $16.67 and the quarterly income is $50.00; the yield on cost is 5.00%; the value is $5,000.00, the cost is $4,000.00 and the gain is $1,000.00 (+25.00%); in five years the dividend is $2.55, the income is $255.26 and the yield is 5.11%.

Working backwards

The price for a 6.00% yield is $33.33 (exact 33.3333); at $33.33 the yield is 6.0006%, at $33.34 it is 5.9988%. The dividend for $500.00 of annual income is $5.00; at $5.00 the income is $500.00, at $4.99 it is $499.00. The shares for $1,000.00 of annual income are 500; at 500 shares the income is $1,000.00, at 499 shares it is $998.00. The cost basis for an 8.00% yield on cost is $25.00; at $25.00 the yield on cost is 8.0000%, at $25.01 it is 7.9968%. The growth rate for a $3.00 year-5 dividend is 8.45% (exact 8.4472%); at 8.45% the year-5 dividend is $3.0004, at 8.44% it is $2.9990, at 8.46% it is $3.0018. The years for the dividend to double are 14.21 years (exact 14.2067); at 14.21 years the dividend is $4.0006, at 14.20 years it is $3.9987.

What changes the answer most

The dividend moves the answer most: $2.00 pays $200.00 a year, $4.00 pays $400.00, and $0.00 pays nothing. The share price is second: $50.00 gives a 4.00% yield, $100.00 gives 2.00%, and the value rises to $10,000.00 with a $6,000.00 gain (+150.00%). The share count is third: it changes the income but never the yield. Growth is fourth: at 10% the year-5 dividend is $3.22 against $2.55 at 5%.

Mistakes that overstate your income

Do not use the quarterly dividend as the annual one: four quarterly payments of $0.50 pay $2.00 a year, not $0.50. Do not count a special dividend as recurring: a one-off payment is not part of the yield. Do not use the price from the day you bought: the yield is the dividend divided by today's price, not your cost basis — that is the yield on cost, a different number. Do not assume the dividend never falls: at a 10% annual cut the year-5 dividend is $1.18, not $2.55. And do not chase the highest yield: a 6.00% yield at $33.33 can mean the price fell because the dividend is about to be cut — the yield rose, but the income is at risk.

How this connects

Run your own numbers with the dividend yield calculator. For the tax on the dividend income, see the how to calculate capital gains tax on crypto guide. For the dividend income over time, see the dividend calculator; for how a split changes the per-share numbers, see the stock split calculator.