How to Calculate Stock Price Using Dividend Yield

Dividend yield is one factor used in picking stocks.

Dividend yield is one factor used in picking stocks.

A company's dividend yield measures the amount of the company's dividends paid annually relative to its stock price. Since dividend yield is measured relative to the stock price, it allows you to compare the yields of companies with vastly different stock prices. For example, knowing only that a company pays a $3 dividend doesn't tell you if that's a high yield or a low yield. If the stock costs $20, $3 in dividends is pretty good. However, if you only get $3 for buying a $500 share, it's not so great. The dividend yield is calculated as the company's stock price divided by its annual dividends. With a little rearranging of the formula, you can use it to figure the stock price from the dividend yield and the dividends paid.

Multiply the dividends per payment by the number of dividends paid per year. For example, if the stock pays a $1.20 dividend quarterly, multiply $1.20 by 4 to find the total dividend yield per year equals $4.80.

Divide the dividend yield expressed as a percentage by 100 to convert it to a decimal. For example, if the company has a 4.5 percent annual dividend yield, divide 4.5 percent by 100 to get 0.045.

Divide the dividends paid per year by the annual dividend yield, expressed as a decimal, to figure the company's stock price. In this example, divide the dividend paid of $4.80 by the dividend yield of 0.045 to find the stock price equals $106.67.

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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