A stock that pays $2.50 per share each year might sound great โ until you realize it costs $200 a share (a 1.25% yield). Dividend yield is the number that puts dividend income into perspective, and it is simple to calculate.
What Is Dividend Yield?
Dividend yield is the annual dividend per share expressed as a percentage of the share price. It tells you how much cash income your investment produces relative to what you paid.
The Dividend Yield Formula
Dividend Yield = (Annual Dividend per Share รท Share Price) ร 100
Worked Example
A company pays $2.50 per share annually and trades at $50:
Yield = (2.50 รท 50) ร 100 = 5%
If you own 100 shares, your annual income is 100 ร $2.50 = $250 โ about $20.83 per month.
Typical Yields by Sector
| Sector | Typical Yield |
|---|---|
| Tech growth | 0โ1% |
| S&P 500 average | 1.3โ1.5% |
| Utilities | 3โ4% |
| REITs (real estate) | 4โ6% |
| Value/Dividend kings | 3โ5% |
The Yield Trap Warning
A yield above ~8% is often a red flag. It usually means the share price has collapsed, or the dividend is unsustainable and likely to be cut. A 10% yield on a falling stock is not income โ it is a warning sign.
Yield on Cost vs Current Yield
- Current yield โ dividend รท current price (what new buyers get)
- Yield on cost โ dividend รท what YOU originally paid (your personal return)
If you bought at $40 and the dividend is $2.50, your yield on cost is 6.25% even if the current yield is 5%. Dividend growth investors track yield on cost over decades.
๐ก Pro Tip: Dividend growth beats high yield. A 3% yield growing 8% per year outpaces a flat 6% yield within a decade โ and is far safer.
Try Our Tools
- Dividend Yield Calculator โ yield and income in seconds
- Investment Calculator โ project your portfolio growth
- Compound Interest Calculator โ reinvesting dividends works like compound interest
*Calculate your dividend income now with our free Dividend Yield Calculator.*
