# How to Calculate Dividend Yield

> Dividend yield = annual dividend per share ÷ share price, as a percentage. A $2 annual dividend on a $50 stock yields 4%. It's the cash income return per dollar invested at today's price.

## The formula

**Dividend Yield = (Annual Dividend Per Share ÷ Share Price) × 100%**

## Worked examples

- $0.50/quarter ($2/year) at $80 → 2 ÷ 80 = **2.5%**.
- $3/year at $40 → 3 ÷ 40 = **7.5%**.

Yield moves inversely with price — a spike in yield often means a falling price.

## Forward vs. trailing yield

Trailing = dividends actually paid over the last 12 months. Forward = latest dividend annualized (e.g. quarterly × 4), reflecting the current rate.

## Yield-on-cost

Current annual dividend ÷ the price you originally paid. For long-term holders of dividend growers, yield-on-cost climbs over time even as market yield stays flat.

## Why a high yield can be a warning

An unusually high yield is often a yield trap — the price fell because the market expects a cut. Check the payout ratio and free cash flow (/learn/fcf); a yield is only as safe as the cash behind it.

## FAQ

**What is a good dividend yield?** For most quality dividend stocks, a yield of 2–5% is typical and sustainable. Much higher yields (7%+) warrant caution — they often signal a depressed share price and possible dividend cut. Always check that free cash flow comfortably covers the payout.

**What is the difference between dividend yield and dividend rate?** The dividend rate is the actual dollar amount paid per share annually (e.g. $2.00). Dividend yield expresses that as a percentage of the share price (e.g. 4% on a $50 stock). Yield lets you compare income across stocks at different prices.

**Is a higher dividend yield better?** Not necessarily. A higher yield means more income per dollar today, but an unusually high yield often reflects a falling price and an at-risk dividend. Sustainable income comes from a moderate yield backed by strong cash flow and dividend growth.

## Related reading

- Dividend Investing Guide (/learn/dividend-investing-guide)
- What Is an Ex-Dividend Date? (/blog/what-is-an-ex-dividend-date)
- Free Cash Flow (FCF) (/learn/fcf)

Track dividends free: https://foliofundamentals.com/dividend-tracker