How to Calculate Annual Return Using Nominal Price and Dividends

by Mark Kennan

Investors compare the productivity of different investments by looking at the annual return. In order to accurately compare the returns on different stocks, you have to account for dividends paid during the year as well as the change in price. For example, a stock that grows by $1 during the year would have a higher change in price than a stock of the same starting value that only increased by 50 cents. But if the second stock paid a $2 dividend, the second stock would have the better return for the year.

Subtract the price of the stock at the start of the year from the price at the end of the year to find the gain or loss in price. For example, if the price went up from $44 to $46.50, subtract $44 from $46.50 to get a gain of $2.50.

Add the dividends paid during the year to the gain or loss to figure the total gain or loss. In this example, if the company paid $1.20 in dividends during the year, add $1.20 to $2.50 to get a total gain of $3.70.

Divide the gain or loss by the price at the start of the year to find the annual return as a decimal. In this example, divide $3.70 by $44 to get 0.0841.

Multiply the annual return as a decimal by 100 to convert it to a percentage. Completing this example, multiply 0.0841 by 100 to find the annual return equals 8.41 percent.

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