If you hold a stock for multiple years, to figure the annual return you have to adjust the return based on the number of years you held the stock . Before you do so, you need to factor in any dividends the stock paid over the years that you held the stock so that you get a true picture of your total return. The formula for the compound annual rate of growth can be used to determine the average annual return including dividends.
1. Add all the dividends you received during the years you owned the stock and add them to the value of the stock at the end of the holding period. For example, if you received $380 in dividends and the stock is now worth $26,400, add $380 to find the total value equals $26,780.
2. Divide the ending returns for the stock by the amount you put into the account. In this example, if you invested $25,100, divide $26,780 by $25,100 to get 1.0669.
3. Raise the result to the 1/N power, where N equals the number of years in the holding period. Raise" means to use exponents. For this example, if you held the stock for six years, raise 1.0669 to the 1/6 power to get 1.010851328.
4. Subtract 1 from the result to find the annual return rate. In this example, subtract 1 from 1.010851328 to get 0.010851328.
5. Divide the annual return rate by 0.01, or multiply by 100, to convert the annual return to a percentage. In this example, divide 0.010851328 by 0.01 to find the average annual return over the holding period equals 1.085 percent.
- Creatas/Creatas/Getty Images