An investor can earn a return on a stock by selling it for more than she bought it for or by collecting dividends. You can calculate a stock’s percentage yield, or dividend yield, to measure the annual return it currently generates through dividend payments. For example, if a stock has a 5 percent dividend yield, it generates an annual return of 5 percent through dividend payments. Percentage yield equals a stock’s annual dividend rate divided by its market price. Stocks that pay no dividends have a dividend yield of zero.
1. Find the amount of a company’s most recent quarterly dividend payment per share of common stock in either its form 10-Q quarterly report or in its form 10-K annual report. You can download forms 10-Q and 10-K from the investor relations section of a company’s website or from the U.S. Securities and Exchange Commission’s online EDGAR database. For example, assume a company paid 40 cents per share in dividends in its most recent quarter.
2. Multiply the most recent quarterly dividend payment by four to calculate the stock’s annual dividend rate. In this example, multiply 40 cents, or $0.40, by 4 to get a $1.60 annual dividend rate.
3. Find the market price per share of the company’s common stock, listed on any financial website that provides stock information. In this example, assume the company’s stock price is $50.
4. Divide the stock’s annual dividend rate by its market price. Continuing with the example, divide $1.60 by $50 to get 0.032.
5. Multiply your result by 100 to calculate the stock’s dividend yield as a percentage. In this example, multiply 0.032 by 100 to get a 3.2 percent dividend yield.
- Compare dividend yields of different stocks to determine which ones offer a higher potential return from dividends.
- A stock’s dividend yield measures only one part of its potential return. If a stock’s price falls after you buy it, the decline may negate any positive return from its dividend yield.
- A company is not obligated to pay a dividend to common shareholders and may decrease or discontinue its dividend payments for various reasons, which would reduce the stock’s dividend yield.
- Equity Asset Valuation, Second Edition; Jerald E. Pinto et al.
- Financial Reporting & Analysis: Using Financial Accounting Information, 12th Edition; Charles H. Gibson