Dividend yield formula
Dividend yield is the annual dividend per share divided by the share price. A $50 stock paying $2 a year yields 4%. Dividends are payments a company makes to shareholders out of its earnings, usually quarterly in the U.S.[3][1]
Annual income is then shares × dividend per share, or simply amount invested × yield. $10,000 at 4% pays $400 a year, $100 a quarter or about $33.33 a month.
Reinvesting dividends (DRIP)
A dividend reinvestment plan (DRIP) uses each dividend to buy more shares, often fractional shares, so future dividends are paid on a growing share count.[2] Over 20 years with 5% dividend growth and 4% price growth:
| $10,000 at a 4% yield, 20 years | Reinvested (DRIP) | Taken as cash |
|---|---|---|
| Annual income in year 20 | $2,368.92 | $1,010.78 |
| Portfolio value | $51,352.27 | $21,911.23 |
| Dividends received over 20 years | $21,885.79 | $13,226.38 |
| Yield on original cost | 23.69% | 10.11% |
Taking cash leaves you the $13,226.38 in dividends to spend; reinvesting turns them into a larger position and a higher income later. Dividends are taxed in the year paid even when reinvested.[4]
How much do I need to invest for $1,000 a month in dividends?
Capital needed = monthly income × 12 ÷ yield. At a 4% yield, $1,000 a month takes $300,000:
| Income goal | 2% yield | 3% yield | 4% yield | 5% yield |
|---|---|---|---|---|
| $500 a month | $300,000 | $200,000 | $150,000 | $120,000 |
| $1,000 a month | $600,000 | $400,000 | $300,000 | $240,000 |
| $2,000 a month | $1,200,000 | $800,000 | $600,000 | $480,000 |
| $5,000 a month | $3,000,000 | $2,000,000 | $1,500,000 | $1,200,000 |
A higher yield needs less capital, but very high yields often signal that the market expects a dividend cut. Dividends are not guaranteed: a company can reduce or stop them at any time.
Dividend taxes
Qualified dividends are taxed at the lower long-term capital gains rates; ordinary (non-qualified) dividends are taxed as ordinary income. Your broker reports both on Form 1099-DIV.[4] Enter an average tax rate to see after-tax income; in a tax-deferred retirement account, use 0%.
Not a forecastDividend growth and price growth are assumptions. Stocks can fall, dividends can be cut, and unlike a bank deposit, shares are not FDIC insured.
Dividends vs interest
A dividend yield is not an interest rate: the share price moves, so your principal is at risk. For a fixed, insured return compare the high-yield savings calculator or the CD calculator; for state-tax-free Treasury income, the T-bill calculator. To project total growth of regular investing at an assumed return, use the compound interest calculator.
Related calculators
- Compound interest calculatorDeposits, any compounding, inflation, goal seek, chart and CSV
- Future value calculatorA lump sum and a series of payments, grown forward
- High yield savings account calculatorYour APY against the FDIC national average, in dollars
Frequently asked questions
How do you calculate dividend income?
Multiply the number of shares by the annual dividend per share, or the amount invested by the dividend yield. 200 shares paying $2 a year earn $400.
How much do I need to invest to make $1,000 a month in dividends?
About $300,000 at a 4% yield, $400,000 at 3% and $240,000 at 5%, before taxes.
What is a DRIP?
A dividend reinvestment plan, which automatically uses each dividend to buy more shares of the same stock or fund.
Are reinvested dividends taxed?
Yes. In a taxable account dividends are taxable in the year they are paid, whether you take them as cash or reinvest them.