Current yield and yield on cost measure different things
Current yield is the annual dividend divided by the current price. At $2.40 a year on a $60 share that is 4.0 percent, and it is what anyone buying today receives. Yield on cost is the same dividend divided by what you paid. If you bought at $40, that is 6.0 percent.
Both are correct and only one is useful for a decision. Yield on cost is a record of a purchase that already happened; it goes up whenever the price rises, which is to say it goes up when the holding becomes a worse deal for a new buyer. It cannot be compared with the yield on anything you are considering, because the alternative would also be bought at today's price. Comparisons belong on current yield. Yield on cost is for looking back.
The one place yield on cost genuinely earns its keep is in seeing what a long-held position now returns on the money originally committed, particularly where the dividend has been raised repeatedly. That is a real observation about the past. It is not a rate available to anyone now.
What the projection is and is not
The multi-year table holds the yield fixed, applies whatever growth rate you enter to the dividend, and moves the price at the same rate so the yield stays put. If reinvestment is on, each year's income buys more shares at that price. This is a mechanical model and every one of those assumptions is a simplification of something that does not behave that way.
| The model assumes | What actually happens |
|---|---|
| The yield stays constant | Prices move independently of dividends, so yield moves every day |
| Dividends grow at a steady rate | Each payment is declared separately; increases pause and reverse |
| The dividend is never cut | Cuts happen, and most often when the payer is already under strain |
| Reinvestment is free and instant | Fees, fractional-share policies and timing all interfere |
| The tax rate you typed is the tax | Withholding, credits and account type interact in ways one rate cannot capture |
The default growth rate is zero for that reason. Leave it there and the table shows what today's dividend produces if nothing changes, which is the only version of the calculation that rests entirely on figures you can check. Raise it and you are exploring a scenario. There is no historical average built into this page and none is offered, because a past average is a description of the past and this page has no standing to present one as an expectation.
Reading a high yield the right way round
Yield is a fraction with the price on the bottom. A share paying $2.40 yields 4 percent at $60, 6 percent at $40 and 12 percent at $20, and nothing about the dividend has changed in any of those. So a screen sorted by yield is, to a large extent, a list sorted by how far prices have fallen. Sometimes that is a market overreaction. Sometimes it is the market pricing in a cut that has not been announced. The yield alone does not distinguish between them, and neither does this calculator.
The related trap is a payout funded from somewhere other than earnings. A distribution can be maintained out of borrowing, out of asset sales, or out of returning your own capital to you, and in the last case the price falls to match while the yield keeps looking healthy. Distinguishing those requires reading the payer's accounts, which is work no calculator does for you.
Ex-dividend dates, and where the money comes from
Buying just before a dividend does not capture free money. On the ex-dividend date the price ordinarily drops by approximately the amount of the payment, because the company is worth exactly that much less once the cash leaves it. What you get is a payment and an equal reduction in the value of what you hold, plus, in many jurisdictions, a tax event you would not otherwise have had. The dividend is a transfer, not a return.
That is also why dividend income and capital growth are not two separate sources of return but two forms of the same one. A company that pays nothing and reinvests is not shortchanging you; it is keeping the money inside the share price. Which arrangement suits you depends on whether you need cash now and on how the two are taxed where you live, and this page takes no position on either.
To see what the underlying holding cost you, which is the denominator behind yield on cost, use the average cost per share calculator. To take the same holding through to a sale, the stock profit calculator nets out the trading costs. For the pure mathematics of reinvested income without any of the dividend-specific caveats, the compound interest calculator is the cleaner tool.
Questions people ask
How do I find the annual dividend per share?
Add up the payments made over the last twelve months, which is the trailing figure and rests on payments that actually happened. Multiplying the most recent payment by the number of payments in a year gives the forward figure, which is a projection and quietly assumes the next three payments will match the last one. For a quarterly payer at $0.60 both methods give $2.40 while the dividend is steady, and they diverge exactly when the dividend is changing, which is when the difference matters. Watch for special or irregular payments, which inflate a trailing figure and will not repeat.
Why does my yield differ from the one on a finance site?
Usually because of trailing against forward, as above, or because the site includes a special dividend, or because it is quoting the price from a different moment. Currency is another source of difference for a holding that pays in one currency and is quoted in another. None of these are errors, they are different conventions, and the practical response is to check which dividend figure and which price the site used before assuming your number is wrong.
Should I reinvest dividends?
This page will not answer that, but it will show you both branches: turn the checkbox off and the table holds the holding flat while paying out cash, turn it on and the income buys more shares each year. The trade is between income you can spend now and a larger holding later, and the right side of it depends on whether you need the cash, on the fees your broker charges to reinvest, and on how the payment is taxed where you live. Note that in most jurisdictions a reinvested dividend is taxed in the same way as one taken in cash, so reinvestment is not a way of deferring anything.
Can I use this for a fund or an ETF?
Yes. Put the distribution per unit in the dividend field and the unit price in the price field, and the arithmetic is the same. Two cautions apply. An accumulating fund pays nothing out but is not paying you less; the income is retained inside the unit price. And some funds distribute more than the income the holdings generate, returning capital to make up the difference, in which case the price is being eroded by the distribution and the yield figure overstates what is being earned. The fund documentation states which it is.