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
Incoming search terms:
- how to calculate dividend yield
- dividend yield formula
- calculate dividend yield
- calculating dividend yield
- dividend yield calculator
- dividend yield calculation
- how do you calculate dividend yield
- how to calculate dividends
- how to compute dividend yield
- how to calculate dividend