Dividend calculator
Hold the defaults and do nothing with the dividends. The payout per share grows 4% a year, so after fifteen years the same 500 shares pay $1,981.04 against a $21,000 cost, a yield on cost of 9.43%, while a new buyer still sees about 5.24%. That divergence is the case for dividend-growth investing. The row labelled "Yield on original cost" above reports 19.71% instead, because it assumes every dividend was reinvested and measures the income of a position that grew to $79,037.11 against the original $21,000. Both figures are defensible and they answer different questions. Use 9.43% when asking what the shares you bought now pay you, and the panel row when asking what the whole reinvested holding pays.
Dividends are not guaranteed and can be cut at any time. This is arithmetic on figures you supply, not investment advice, and it ignores tax, which varies considerably by country and account type.
Annual dividend income is the per-payment dividend times payments per year times shares held. Five hundred shares paying $0.55 quarterly is $1,100 a year, a 5.238% yield on a $42 share price, and $91.67 a month averaged out.
How to calculate dividend income
A high current yield is as often a warning as an opportunity. Yield is the dividend divided by the price, so it rises when the price falls, and a price falling because the market expects a cut produces exactly the same high yield as a genuinely cheap share. Payout ratio is the sanity check: a company paying out more than it earns is funding the dividend from reserves or borrowing, and that does not continue indefinitely.
What the reinvestment rows assume
The four rows below the yield grow the whole position at the current yield plus the dividend growth rate, 9.238% a year on the defaults, and they reinvest every payment at an unchanged yield. Two large assumptions are hiding in that. The first is that the share price rises at exactly the dividend growth rate forever, which is the only way a yield stays constant while a payout grows. The second is that nothing else moves the price at all. A real holding whose price outran its dividend would show a falling yield and a smaller reinvestment effect; one whose price fell would show the opposite. The figures are a clean scenario, not a forecast, and the number they are most sensitive to is the growth rate rather than the starting yield.
Yield tells you nothing on its own
Double the price field to $84 and the income row does not move: still $1,100 a year, because you own the same shares receiving the same payment. Only the yield halves, to 2.619%. Yield is a statement about price, and income is a statement about holdings. Confusing the two is how a portfolio ends up chasing a number that falls the moment the market agrees with it.
What people use it for
- Working out income from a holding
- Comparing yields across shares
- Modelling a dividend reinvestment plan
- Estimating income in retirement from a portfolio
- Separating yield on cost from current market yield
- Checking what a dividend cut would do to an income plan
Questions
Annual dividend per share divided by share price, times 100. A $2.20 annual dividend on a $42 share is 5.238%.
$1,100: $0.55 per share, four payments a year, 500 shares. That is $275 a quarter and $91.67 a month averaged out.
The per-payment one, with the frequency beside it. Entering an annual figure with a quarterly frequency multiplies the income by four.
The dividend against what you originally paid, rather than against today’s price. It rises over time when the dividend grows, even while the market yield stays flat.
Because it assumes reinvestment. It measures the income of a position that grew to $79,037.11 against the $21,000 originally paid. Without reinvesting, the same shares would pay $1,981.04 after fifteen years, a yield on cost of 9.43%.
9.43% if you are asking what the shares you bought now pay you. The panel row if you are asking what the whole reinvested holding pays against what you first put in.
By compounding at the current yield plus the dividend growth rate, 9.238% a year for fifteen years on $21,000. That assumes every payment is reinvested and the yield never moves.
Set growth to zero and the position reaches $45,166.24 instead, with a yield on cost of 11.27%. Growth is doing a little over half the work in the default scenario.
Only implicitly, and in one very particular way: it assumes the price rises at exactly the dividend growth rate, which is what keeps the yield constant. Any other price path gives a different answer.
Not always. A yield above about 8% often reflects a price falling because the market expects a cut, and the cut removes the yield that attracted you.
Dividends as a share of earnings. Above 100% the dividend is being funded from reserves or debt, which is not sustainable, and the ratio is the first thing to check behind a large yield.
It means the price fell relative to the dividend. Whether that is cheap depends entirely on whether the dividend survives.
Because income depends on shares held and dividend per share, and neither of those moved. Only the yield changed, from 5.238% to 2.619%.
Reduce the per-share figure and everything downstream falls with it, including the reinvestment rows, which compound the smaller yield. A cut early in a long horizon does far more damage than the same cut late.
No. Quarterly is the US norm, twice-yearly is common in Europe and the UK, and some funds pay monthly. Set the frequency to match, because it changes the per-payment figure but not the annual total.
No. Dividend tax varies widely by country and account type and can materially change the net figure, and a reinvested dividend is often taxable in the year it is paid even though no cash reached you.
Effectively yes. The model compounds a value rather than counting shares, so it never has to leave a residual payment uninvested. A real plan that only buys whole shares will run slightly behind.
Not modelled. Where a reinvestment plan buys at a discount to market, the real position would grow a little faster than the figures here.
Yes, with distributions in place of dividends. Note that a fund’s distribution can include return of capital as well as income, and this page treats every payment as income.
As one input. It gives the income a holding throws off under a fixed set of assumptions, and says nothing about whether that income is safe, diversified or keeping pace with prices.
Only if it exceeds it. Four per cent nominal growth against 2.5% inflation is about 1.5% real, so the income rises in real terms slowly rather than dramatically.
No. Share prices, holdings and dividends are all computed locally and none of them are stored or sent.