As dividend investor, before you buy a stock you want to know its current dividend yield per year. The dividend yield is defined as follows:
The current dividend yield is the yearly paid dividend per share in relation to the current price per share. It is expressed as percentage of the current share price.
Let’s take Abbvie (ticker symbol ABBV) as example and assume following values:
- Current price per share: $117.07 USD
- Current annual dividend: $5.20 USD
So, our initial dividend yield per year on a new position in ABBV would be 4.44% if you had bought it to these conditions.
What happens if the price per share changes?
Now comes a very important take away for novice investors.
Let’s assume the share price rises or falls. The dividend stays the same. How does this affect the dividend yield?
|Price per Share||$111.21 USD||$117.07 USD||$122.92 USD|
|Annual Dividend||$5.20 USD||$5.20 USD||$5.20 USD|
When the price per share falls the dividend yield increases.
If the price per share rises the dividend yield decreases.
So, as dividend investor you profit from a falling share price since you can buy the same yearly dividend for less money.
However, you always have to consider the reason why a share price price dropped. Is it an over reaction by the market or are there some fundamental issues with the company?
Where to find the information?
The last question is where you can find the information to calculate the dividend yield?
The dividend per share is published in a company’s annual financial report. You can also search in Google for the stock symbol: e.g. “dividends ABBV”.
For stocks traded on the NASDAQ you will find a page like this:
Current dividend yield in the 22 Dividends app
The 22 Dividends app automatically computes the dividend yield for your stocks. Here is an example of the cashflow view:
As we learned earlier the dividend yield changes with the share price. To recalculate the dividend yield you can just refresh the view.
In the US, most companies pay quarterly dividends.
When a company announces a dividend this announcement is for future payments. However, the future is uncertain. Something might happen that forces the company to cut the dividends due to an unexpected event.
Following figure visualises dividend payments over multiple business years:
The 22 Dividends app uses a trailing year to compute the dividend yield. We only consider the next upcoming dividend event. The app does not extrapolate the payments over the next year. We only use what is known for sure. This causes the dividend yield to gradually increases with each quarter instead of one big rise.
One more reason to use the trailing year approach is that the dollar amount of the dividend payments might not be the same in all quarters. Often it is but it doesn’t have to be. This makes a prediction difficult.
The trailing year approach for the computation might be the reason why the numbers in the 22 Dividends app and pages like Yahoo Finance might appear to be different. It is just a different approach to compute and visualising the data. In the end you will get the same result.
If you want to learn about how to compute the average start yield of your portfolio position we recommend following article: