Dividend Yield
The yield a dividend pays against today's price, and against what you actually paid for it.
Recent
Formula
How the calculation works
Yield is the dividend divided by the price, and the price moves, so the same dividend quoted on two different days gives two different yields. That is why a yield is only meaningful with the price it was measured at.
Yield on cost uses what the holder actually paid instead. A share bought at 40 that now trades at 50 and pays 2 shows 4% on today's price and 5% on cost, and the second figure is the one that describes the income the position really produces.
Common mistakes
- Reading a high yield as a bargain. A price that has fallen lifts the yield while the company may be about to cut the payout, so a high yield can be a warning rather than an opportunity.
- Comparing yields without checking the payout ratio. A dividend that consumes nearly all the earnings is one bad year away from being reduced.
When to use it
- Use it to work out the income a holding pays now, and to see the yield on cost for a position held for years.
- It is also the check when a screen shows a yield that looks unusually high: run it against the price and ask whether the payout is one the company can keep.
Worked example
A 2 dividend on a 50 share is a 4% yield; bought at 40 it is 5% on cost, and 100 shares pay 200 a year.
Common questions
Why show yield and yield on cost?
Yield is against today's price, which is what a new buyer sees. Yield on cost is against your own price, which is what a long-held position really earns.
Is a high yield always good?
No. A falling price lifts the yield on paper while the company may be about to cut the dividend. Read the yield alongside whether the payout is sustainable.