How to Calculate Rate Earned in Common Stock

by C. Taylor

When you invest in common stock, your goal is to make money. These stocks offer two ways to accomplish that goal. The first way is through through increase share price, so when you finally sell your stock, you reap a profit. The other way is through quarterly dividends, which are paid for as long as you own the shares. Not all stocks offer dividends, but for those that do, you need to include this income in your rate of return calculation.

1. Subtract your selling price for the stock from your purchase price. This gives you the overall price change. As an example, if you purchased a stock for $20 and sold it for two years later for $35, then you would have profited $15 per share.

2. Add the dividends received while you owned the stock. In the example, if the stock offered annual dividends of $3, then you would have gained $6 for the two years you owned the stock, bringing your total profit up to $21 per share.

3. Divide the profit by the original purchase price and then multiply by 100. This gives you the percent rate of increase over your ownership period. In the example, you would divide $21 by $20 to get 1.05, or 105 percent.