How to Calculate the 5-Year Average Dividend Yield

The higher the dividend yield, the larger the dividend payments relative to the stock price.

The higher the dividend yield, the larger the dividend payments relative to the stock price.

As companies mature and need less money for reinvestment, many opt to pay dividends to shareholders. This gives shareholders a part of the profits of the company without having to sell off any stock. If you're looking for a stock that will pay you each year, looking at the past five years of dividend yield information can help predict how much it will pay in the future. However, while past performance can be helpful information, it doesn't guarantee future success.

Calculate the dividend yield for the previous year by dividing the dividends paid by the price at the start of the year. For example, if the stock started the year at $50 per share and paid a $1.50 dividend, divide $1.50 by $50 to get a dividend yield of 0.03, or 3 percent.

Repeat Step 1 to calculate the dividend yield for each of the four years prior. For example, if two years ago the stock price started at $48 and paid $1.20 in dividends, divide $1.20 by $48 to get 0.025, or a 2.5 percent yield. Repeat to find the dividend yields for the third, fourth and fifth years.

Add each of the annual dividend yields. For example, if the yields for the past five years are 3 percent, 2.5 percent, 4 percent, 3 percent and 4.5 percent, the total is 17 percent.

Divide the result by 5 to find the average annual dividend yield for the past five years. In this example, divide 17 percent by 5 to find the average annual dividend yield is 3.4 percent.

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