How dividend yield works
Dividend yield tells you how much a stock pays in dividends each year relative to its current price. It is written as a percentage.
The formula
Dividend yield = annual dividend per share ÷ share price × 100. A stock priced at $100 that pays $4 a year in dividends has a yield of 4%.
Forward yield and trailing yield
- Forward yield uses the dividend the company is expected to pay over the next year, usually the latest payment multiplied by how many payments a year it makes.
- Trailing yield adds up what the company actually paid over the last 12 months. It is steadier, but it lags when a dividend has just changed.
The two are usually close for stable payers. They can differ a lot for funds whose payouts or prices have moved sharply, so it is worth knowing which one you are looking at.
Why the price matters
Yield moves when the price moves. If a stock falls by half and keeps paying the same dividend, its yield doubles. That is why an unusually high yield can be a warning that the market expects the dividend to be cut, rather than a bargain.
Yield on cost
Yield on cost compares today's yearly dividend to the price you originally paid. A company that grows its dividend can have a yield on cost well above its current yield.
Try the Yield on cost calculator →
Frequently asked questions
What is a good dividend yield?
There is no single answer. Yields vary a lot by sector, and a very high yield can reflect risk. Compare similar companies and check whether earnings cover the dividend.
Is forward or trailing yield better?
Neither is always better. Forward yield reflects the current payout, and trailing yield reflects what was actually paid. Looking at both gives a fuller picture.
Keep reading
General education only, not investment, tax or legal advice. Rules can differ by country and security.