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How To Calculate Dividend Yield
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Jan 282012
 

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People have been sending me questions about how to calculate dividend yield of a stock? Sometimes its as easy as multiplying the past dividend by 4, as the majority of stocks pay the same quarterly dividend every 3 months.

For example, Duke Energy, DUK pays 25 cents a share per quarter, multiply that by 4, and you get $1.00 a share for the year. Divide that number by the current share price, $21.40 a share, the yield is 4.67%.
Let me take a more difficult example. Chimera Investment Corporation, CIM paid 11 cents on the last quarter. Multiply that number by 4, and you get 44 cents a share. Divide that number by the current share price, $2.74, the yield is 16.06%. Most sites will post this number, which can be a real misnomer. CIM actually paid 51 cents over the previous year, which would show its true yield being higher than that 16% figure. However, a lower yield may be better than a false high number.

A false high number could be caused by a one time dividend payout, or a company that has a variable payout, or a third option, a company that does not pay dividends on the normal quarterly schedule. An example that came up is Frontline, FRO. Review the 2008 chart. The quarterly dividends were paid like this:

1st quarter: $2.00
2nd quarter: $2.75
3rd quarter: $3.00
4th quarter: $0.50

As you can see, depending on what quarter you reviewed the stock, the dividend yield calculation could be completely different, and give someone a false high (or low) on the stock. Buyer beware.
My advice is to review dividend payouts over the previous 2-3 years, and review the earnings for the company for the next two quarters. The earnings better be at least enough to pay the dividend, and hopefully more. I will write about dividend to earnings ratio in a future post. Hopefully you now know how to calculate dividend yield.
Disclosure: I am long CIM

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  2 Responses to “How To Calculate Dividend Yield”

  1. Great straightforward post on how to calculate dividend yield. Thanks!

  2. kindly help me to solve this question.

    if a company has a paid up share capital of 2,000,000 and had paid a current dividends of 3.50 when the current market price of the shares is12.00 with 15% rate of capitalization;
    compute the market price of the share if (a)dividend is given (b) dividend is not given

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