How to Calculate Annual Return Using Nominal Price and Dividends

A stock's dividends provide an annual return on your investment.

A stock's dividends provide an annual return on your investment.

When you invest in stocks, overhead fees can affect your annual returns. Your broker may charge you a commission, reducing your return, or you may buy shares at a premium, above their face value. On the other hand, you might buy stock at a discount, which raises your annual return. One way to simplify your return calculation is to ignore these additional factors and simply compare your dividend to the stock's nominal price, exclusive of overhead.

Divide the dividends that you receive at the end of the year by the number of shares that you own in the company. For example, if a company pays you a dividend of $20 on 10 shares, divide $20 by 10 to get $2. This is the dividends that the stock pays per share.

Divide the dividends per share by the stock's nominal price.For example, if you paid $50 for each share, divide $2 by $50 to get 0.04.

Multiply this ratio by 100. Continuing the example, multiply 0.04 by 100 to get 4 percent, your annual return on the investment.

 

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Ryan Menezes is a professional writer and blogger. He has a Bachelor of Science in journalism from Boston University and has written for the American Civil Liberties Union, the marketing firm InSegment and the project management service Assembla. He is also a member of Mensa and the American Parliamentary Debate Association.

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