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.
- Comstock/Comstock/Getty Images
- How to Trade Options Weekly
- How to Calculate the Capitalization of Retained Earnings for a Small Stock Dividend
- The Differences Between a Stock Split and a Stock Dividend
- How to Calculate Stock Price Using Dividend Yield
- The Advantages of Owning Dividend Paying Stocks
- How to Make Money in Stocks Without Being Paid Dividends
- Dividend Payers vs. Non Dividend Stocks
- Features of a Budget
- What Happens if You Sell a Dividend-Paying Stock After Receiving a Dividend?
- Importance of Stock Dividends