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What you will learn
- Calculate dividend yield with a clear price base.
- Explain how the same dividend can produce a larger ratio when the price falls.
- Distinguish dividend yield from total return and the dividend payout ratio.
Use amounts per share in both numerator and denominator
Assume a cash dividend of SEK 3 per share for a stated twelve-month period. With a price of SEK 75, the yield is 3 ÷ 75 × 100 = 4%. Comparing the same dividend amount with a price of SEK 60 produces a ratio of 5%.
The dividend does not need to grow for the ratio to rise from 4% to 5%. In our comparison, the price became lower. The table provides two calculation bases rather than confirming that the same dividend will actually be paid again after the price changes.
If the table does not fit, scroll it sideways.
| Input or result | Price SEK 75 | Price SEK 60 |
|---|---|---|
| Dividend per share for stated period | SEK 3 | SEK 3 |
| Dividend yield | 4% | 5% |
| What changed | Price base | Price base |
A dividend ratio does not include the price loss
In a separate sequence, you buy a fictional share for SEK 75, receive a SEK 3 dividend and sell for SEK 60. Before fees and tax, the amount returned is SEK 63. The result is 63 − 75 = −SEK 12, or −16% of the purchase price.
A dividend yield of 4% on the purchase price is therefore different from the entire result for that period. Calculating simple total return in this model also needs the price change. We do not reinvest any dividend and assume no other payments.
Read whether the number uses past payments or a proposal
A dividend already paid and a proposed or estimated dividend are different inputs. Mark which one you use. Also avoid dividing one instalment by the price and calling the result an annual ratio without explaining the period.
The price might be a current quote, a year-end price or your own earlier purchase price. Those ratios differ even with the same numerator. A measure based on your acquisition cost should not be presented as automatically equivalent to the current market dividend yield.
Do not replace the share price with earnings
If the same company has EPS of SEK 6, then 3 ÷ 6 = 50%. This compares the dividend with earnings per share and is a payout ratio in the simplified model. It is different from dividend yield, whose denominator was the share price of SEK 75 or SEK 60.
Always put the measure’s name and base beside the answer. A practice partner can then follow the same calculation without guessing. A high dividend ratio also guarantees neither future payments nor a positive total result. Continue with payout ratios to understand the question from the company’s earnings perspective.
Try it yourself
A fictional share has a SEK 2 dividend for a specified twelve-month period. Calculate dividend yield using a price of SEK 50 and then SEK 40. What changed the ratio?
Show the solution and explanation
4% with SEK 50 and 5% with SEK 40. The lower price raised the ratio; the dividend amount stayed the same.
2 ÷ 50 × 100 = 4. Then 2 ÷ 40 × 100 = 5. The difference is 1 percentage point. These are two price bases, not a forecast of any future dividend.
Check your understanding
Does a 5% dividend yield show that the whole year’s investment returned +5%?
No. The ratio does not include the entire price change. Our purchase-and-sale example has a total result of −16%.
Is the dividend divided by EPS a dividend yield?
No. It is a payout ratio in our simplified model. Dividend yield uses the share price as its base.
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More lessons on this topic
Ratios and compound growth
Sources and examples
The sources support the factual explanations. Calculations and exercises were created for this lesson. Amounts and price changes are invented unless stated otherwise.
This material is educational and does not recommend securities to buy. A simulated result does not guarantee a future result.
