How it works
Dividend yield is the annual dividend per share divided by the share price. A $50 stock paying $2 a year yields 4%. Multiply your investment by the yield to estimate annual income.
With dividend reinvestment (DRIP), each payment buys more shares, which then earn their own dividends. Combined with dividend growth, this compounding can raise income much faster than the payout growth alone.
Yield on cost is the current annual dividend divided by what you originally paid. It rises over time when companies grow their dividends.
Formula
Yield = annual dividend per share ÷ share price; income = shares × annual dividend
Questions people ask
Is a high dividend yield always good?
Not necessarily. A very high yield can signal a falling share price or a payout the company cannot sustain. Check the payout ratio and dividend history.
How are dividends taxed?
In the US, qualified dividends are taxed at long-term capital gains rates; ordinary dividends at income tax rates. Dividends in IRAs and 401(k)s are not taxed each year.
What is the difference between forward and trailing yield?
Trailing yield uses dividends paid over the past 12 months. Forward yield annualizes the most recent or announced dividend. Enter whichever dividend figure you want to evaluate.